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Ford: Fueled for Growth

April 07, 2014 | About:
mitu77

mitu77

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The automotive segment is a competitive market with companies like Ford looking to establish a stronger foothold globally. Growth patterns in the Asian market, mainly due to the rising economies and higher-paying capacity, are resulting in a brighter future for automakers. Companies like Ford (F) are all set to write another success story by capturing the Asian market and also increasing their global footprint in the automotive segment.

Financials

Ford recently declared its fourth quarter 2013 results, and it was firing all guns. The company recorded its 18th successive profitable quarter. It recorded revenue of $37.6 billion, grown by 4% and $1.3 billion a year ago. The revenue increase was due to high sale volume. The company recorded total unit sale of 1.6 million units in the fourth quarter, 5% growth and up by 76,000 units from year ago.

The bottom line also witnessed growth. It recorded $3 billion in handsome growth by $1.4 billion a year ago. Since the credit tax liability of the company was reduced it also attributed to the growth in net income over a year ago. Earnings per share were $0.74, up by $.34.

The strong revenue exemplify, that Ford’s performance in the global arena is remarkable. Geographically the company recorded growth in profits and increased market share in the U.S., Asia pacific and Africa regions. Revenue continued to ramp up on a year-over-year basis for the fifth consecutive quarter. Results were gloomy in Europe where the economy is still in recovery phase, while South America still faces loss.

Ford Eyeing Asian Markets, Mainly India

With the economy rising in Asian countries like India, automobile giants are now targeting this region to influence its top and bottom line by tapping the Indian market. Also, India is now becoming a major hub for automobile manufacturers for exporting vehicles to other Asian developing countries like China. India now represents one of the world’s largest automobile industries.

Some Statistic That Propel Ford to Eye the Indian Market

The passenger car market industry is estimated to grow at a CAGR of 13% during 2012 to 2021. The export market in India for this segment is expected to touch $30 billion by 2020 to 2021 as per ACMA (Automotive Component Manufacturers’ Association).

Premium sports utility vehicle demand will continue to grow and is estimated to reach 25,000 units annually in India.

Ford’s Success with Ecosport in India

With the launch of Ford Ecosport model, it recorded booking of 30,000 units just in 17 days. It further continued to fill its order books to record 60,000 vehicles, before it suspended any further booking to meet the existing order in books. The overwhelming response for this vehicle boosted Ford’s confidence which enabled it to establish new plants in India.

Journey Ahead

Ford anticipates flat revenue for the year 2014 with a positive cash flow as compared to last year. The operating profit of the company may range from $7 billion to $8 billion in the year 2014.

To meet the growing demand in Asian countries, The Company plans to invest $1 billion as an expansion plan in India. Ford is establishing a new production plant which is projected to be commissioned by end of 2014 and production to commence in early 2015. Ford already has an existing unit in southern part of India. Ford also plans to launch over 8 new models of car in India, by end of 2015.

European market for Ford is expected to improve this year as the country is recovering from the economy crash. Ford expects to move up in European market with economy recovering in various European countries.

Competitor

General Motors (GM) is in head on competition with Ford in the global arena of Auto cars. The company occupied a global market share of 11.4% in Q4-2013 down by 0.2% from year ago quarter. The company is recently hit by car recall for defect in the ignition switch. In Feb-2014, the company recalled 1.6 million older cars globally for replacement of the defective switch. Adding insult to injury to GM is the Chevrolet Cruze small cars with 1.4 Liter turbo Engines. The company has suspended selling of this model of car for an undisclosed reason. GM will always be affected by such moves in terms of it bottom lines. The company is also hit by a pre-tax charge of $400 million in the Q1-2014, courtesy change in the exchange rate of Venezuelan currency Bolivar Fuerte.

The impact should be witnessed in the upcoming call earning of GM (Q1-2014), expected this month.

As per the Q4-2013 reports, GM recorded a revenue of $40.5 billion missing the consensus estimate by $.3 billion but recorded 3.1% year over year growth. Unit sales slid down by 1.3% to record 1.65 million vehicles.

Conclusion

Both Ford and GM are global leaders in automotive segment. But from an investors point of view the recent setbacks faced by GM Ford can be considered more favorable for an investor. Currently the stocks of Ford trade around $16 and with a narrow band of 52 week high low ($12.15 - $18.02) can be favored by investors. PE of the company which is 9.05 is also impressive with an EPS of 1.76. The company also has a good dividend paying history and is increasing from last three years.


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