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Will Ford Be One of the Best Picks for Your Portfolio?

April 29, 2014 | About:
Suravi Thacker

Suravi Thacker

1 followers

The average age of automobiles has been on a rise. It has risen to 11 years as people are trying to save money by delaying their buy of new vehicles and keeping the existing ones for long. This has brought in additional costs for many automobile retailers, such as Ford (F), since it leads to higher warranty payments on wear and tear of vehicles. This is one of the reasons why Ford missed on its first quarter expectations, leading to a decline in its stock price.

Analyzing the Performance

Revenue during the quarter climbed 6% to $35.9 million, over last year. Although the top line was according to analysts’ expectations, the bottom line was significantly lower. Earnings came in at $0.25 per share as compared to $0.41 per share last year. Further, earnings estimates were at $0.31 per share.

There were a host of factors which affected the retailer’s performance. Firstly, colder than usual weather hampered sales and also led to higher costs to run the plants. Secondly, devaluation of Venezuelan currency affected the bottom line. Lastly, the company transferred $400 million to warranty reserves. Excluding these effects, the performance would have been much better.

Going by the Regions

Taking a look at Ford’s performance in some of its major regions will provide a clear idea about how the company has been performing. One of the weak spots for Ford was the American region where it witnessed a 5% decline in sales and a 2.4% drop in volumes. However, its 15 new introductions in the region should help attract customers in the coming months. Additionally, the company plans to introduce another 16 new models in U.S. during this year.

Moreover, Ford’s new F-150 has gained a lot of popularity since it has an aluminium body, which reduces the weight of the vehicle. Hence, it saves on fuel costs. This truck provides tough competition to General Motors, which is now trying to produce a similar product in order to attract customers.

Ford has been doing extremely well in Europe. This is mainly because the region has been recovering from its recessionary period. Also, the company has restructured its business in the region. The launch of the new EcoSport in Europe helped Ford witness a great revenue increase. In fact, volume during the period surged 11% to 367,000 vehicles sold in Europe. Further, Mustang, which is expected to launch this year, will further add to its revenue. Ford plans to bring 25 new models in Europe over the next five years.

Moving on to China, the region registered a growth of 32% in volumes over last year’s quarter. This was mainly due to seven new launches, which attracted value-oriented Chinese people. Moreover, there are another 15 new models which are expected to be launched during this year. Ford will not only expand its product portfolio in the region, but will also expand its store base in China in the coming year.

Summing It Up...

Despite a large number of problems and costs related to new launches, Ford performed well. Also, the automobile retailer had resorted to aggressive marketing which will help in driving sales of new cars higher. Ford’s great product portfolio and a host of new launches expected during the year, make me believe in this company. Investors should take note of this company.


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