Is Ford Looking at a Breakthrough Quarter?

source: http://www.flickr.com/photos/rickharris/

source: http://www.flickr.com/photos/rickharris/

After years of woes — including eroding market share, decreasing profit margins, and the downgrade of its corporate bonds to junk status in 2005 — Ford (NYSE:F) may be finally standing at the beginning of a new chapter in its history. With analysts predicting that the second largest U.S. automaker will post its highest first quarter North American profit ever, the company’s comeback appears to be gaining momentum.

According to estimates made by Morgan Stanley and JPMorgan Chase, Ford probably earned a record $2.7 billion pretax profit in North America during the first three months of the year. Provided that prediction is correct, Ford’s lineup of well-received new vehicles — including the mid-size Fusion and compact Focus — was responsible for the company’s strong financial performance. Combined with renewed demand for pickups, the automaker will likely post the biggest U.S. sales gain among top automakers for the quarter.

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Ford does have some lingering problems; austerity measures in Europe have drastically reduced demand, a weakening yen has given Japanese automakers like Toyota (NYSE:TM) a boost in the United States, and its vehicles have done poorly in the luxury market. But throughout the last quarter, the Dearborn, Michigan-based company impressed both analysts and consumers with the ongoing reinvention of its cars and trucks, noted Bloomberg…

“The double benefit of new product in the car segments and the very strong industry pickup demand created what seems like a picture-perfect quarter for Ford in North America,” Citigroup analyst Itay Michaeli told the publication. “They’re really in a sweet spot.” He recommended buying the shares.

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Even profit margins are expected to improve in North America; analysts at both Morgan Stanley and JPMorgan have predicted the company’s first quarter North American profit margin to come in above 12 percent. Keeping Ford’s margins at this level will require Chief Executive Officer Alan Mulally to keep the automaker’s lineup fresh, particularly in terms of fuel efficiency and the car and utility vehicle segments. But, the weakening yen will give Toyota and Honda (NYSE:HMC) an edge in this area.

There will potentially be some disappointments in Ford’s earnings report. Losses in Europe and South America likely spurred a drop in operating profit to 37 cents per share from the 39 cents reported in the year-ago quarter. The good news, as Morgan Stanley auto analyst Adam Jones told Bloomberg, is that much of the money Ford is expected to lose in Europe over the near term will not be repeated. Ford plans to close three European factories by 2014, and while this move will cause temporary disruptions to production, the closures will eventually save Ford $500 million annually. This year, the company faces about $400 million of accelerated depreciation that will not recur once the plants are shuttered…

However, Ford has been forced to push back the introduction of the European version of the Fusion, the Mondeo, because the vehicle is built at one of the factories due to be shuttered. Europe is “a very controlled mess for Ford,” said Jonas, who rates the shares at an equivalent to a buy. Ford is very blunt about how weak the market is, but they are very confident and excited about the improvement that is going to come,” added the analyst.

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Despite the problems in Europe and with the yen, the luxury market is one of Ford’s biggest vexations. Sales of its Lincoln-branded vehicles dropped in January to their lowest level in almost 32 years, falling 24 percent from a year earlier to 15,899. Comparatively, just one car in Toyota’s luxury Lexus line, the ES sedan, outsold the entire Lincoln brand in the first three months of the year.

Nevertheless, Ford’s vehicle lineup is better positioned than it has been in years. The company “can be competitive regardless of where a customer wants to come into the market, whether it’s at the entry level, the truck level or the crossover/SUV level,” Bloomberg Industries auto analyst Kevin Tynan told the publication.

Here’s how Ford has traded in 2013:

Screen Shot 2013-04-23 at 11.59.25 PM

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