What’s Next for Ford?
Ford Motor (NYSE:F) dropped 4 percent on Tuesday morning following its fourth-quarter and full-year 2012 financial report. America’s second-largest automaker logged its highest quarterly pre-tax profit in over a decade — $1.7 billion, or $0.31 per share, a 55 percent year-over-year increase — but investors are pulling back in light of an underwhelming forecast for 2013.
Fourth-quarter revenue increased 5.5 percent to $36.5 billion, but full-year revenue dropped 1.5 percent to $134.3 billion. Automotive sector revenue of $34.5 billion, a 5.7 percent year-on-year gain, accounted for 94.5 percent of total revenues. Fourth-quarter automotive operating margin increased 1.6 points to 3.8 percent, but the full-year margin fell from 5.4 percent to 5.3 percent.
|Quarter||Dec. 31, 2011||Mar. 31, 2012||Jun. 30, 2012||Sep. 30, 2012||Dec. 31, 2012|
|Revenue ($) in millions||34,580||32,440||33,210||32,170||36,500|
|Diluted EPS ($)||3.33||0.35||0.26||0.41||0.40|
Ford’s overall results were pulled up by its strong performance in North America and weighed down by continued weakness in the European market. Ford North America reported a 12.7 percent increase in revenue to $22.1 billion for the quarter, and a 3.9 point increase in operating margins to 8.4 percent. For the year, Ford North America increased its revenue 6.5 percent, and increased its operating margin 2.1 points to 10.4 percent. All things considered, that’s a good margin.
But there is some downside…
The company’s share of the U.S. market fell from 16.8 percent in 2011 to 15.5 percent in 2012, echoing a similar market share loss at General Motors (NYSE:GM). However, this is less a failure of the American manufacturers and more a success of their Japanese competitors and a correction in the market. Toyota (NYSE:TM) and Honda (NYSE:HMC) both grew their market shares for the year, rebounding from a 2011 production slump that was the result of a devastating tsunami.
In 2011, with Japanese competitors struggling to rebuild, American manufacturers grew their share of the market to an artificially inflated level. Last year, some of that was corrected, and according to forecasts from both Ford and GM, their shares of the U.S. market may dwindle even further. These fears are fueled by a weakening yen, which could prove to be a competitive boon to Toyota and Honda.
Meanwhile, Ford Europe continues to weigh like an anchor on the rest of the company. Fourth-quarter revenue shrank 21.7 percent to $6.5 billion, while margins dipped 9.1 points to negative 11.4 percent. For the year, revenue shrank 21.3 percent, while margins fell 6.5 points to negative 6.6 percent. Ford Europe lost $1.7 billion for the year, in line with expectations.
“The decline in Ford Europe’s fourth quarter pre-tax results was more than explained by unfavorable volume and mix. The industry for the 19 markets Ford tracks in Europe was 13.5 million units, the lowest quarterly SAAR since 1995,” commented the company in its report.
The company’s transformation plan for the region is pretty much in full swing, but Ford warned that things could get worse before they get better. Ford and other auto-industry players are looking to see a recovery in the European car market in the middle of the decade. Losses for 2013 are predicted to reach as high as $2 billion as the company continues to restructure and position itself for what will hopefully one day be a healthy market.
Ford South America increased its revenue 10.7 percent for the quarter, and grew its operating margin by 0.9 points to 4.8 percent. This gain is “more than explained by favorable market factors driven by several new products recently launched; higher costs and unfavorable exchange in Brazil were partial offsets.”
However, full-year margins fell 5.7 points to 2.1 percent. Ford expects its 2013 results for the region to be about breakeven with 2012, despite new product launches. New competitive factors and unfavorable currency risks are expected to negatively impact profits.
Ford Asia-Pacific-Africa increased its fourth-quarter revenue 47.4 percent, and pulled its margins up 5.8 points to 1.4 percent. “The improvement in both fourth quarter pre-tax profits and operating margin was more than explained by favorable market factors, offset partially by higher costs associated with new products and investments to support higher volumes and future growth,” reported the company.
Ford also expects its Asia-Pacific-Africa unit to breakeven in 2013. The message here seems to be that North America will be the engine for growth, while Europe will remain an anchor for now. Like GM, Ford looks like it is using 2013 to position itself for long-term growth.
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