A “pit stop” in a Formula one race can indicate either of these two things. The first is that the driver intends to surrender and therefore, is bringing his car back home. The other however, is that the driver has taken a short pause and is preparing to make it big in the forthcoming laps. Now, as per the CEO of Ford Motor Company (F, Financial), it is also experiencing this pit stop situation wherein, it has taken the year 2014 to be more of a pause than an aggressive stride. On the back of an earnings drop in Q3 of 2014, Ford now prepares to make it big in 2015, with biggest bet placed on its aluminium-bodied F-150 pickup truck.
The earnings report card
Ford announced its third-quarter earnings on Friday wherein the company reported a profit of $1.2 billion before taxes, down $1.4 billion compared with prior year period. The overall revenue dropped approximately 3% to $34.9 billion and it being attributed to the closedown of the F-150 plant in Dearborn, Michigan. The company also mentioned that the wholesale volumes fell by 3% partly due to parts shortages. Excluding one-time items, the Michigan based giant reported an EPS of 24 cents per share, which beat the Street estimate of 19 cents a share. Even though the EPS reported by the company beat Street’s estimate but investors were not quite happy with the performance as evidenced by a fall of 3.3% in the share price after the earnings call.
Product innovation
The new CEO of Ford Mr Mark Fields has been focusing hard on Ford’s product portfolio and though many changes are not yet visible, it is clear that the new management is investing credible efforts into product innovation. In order to understand more about it, I will be discussing a couple of Ford’s brands i.e the F-150 pickup truck and Lincoln, which have been in the news, and the implications of Ford’s actions. To begin with, let me clearly point out that the F-150 is expected to contribute largely to the company’s bottomline in the year 2015, which makes it extremely important for investors to understand Ford’s strategy with respect to this product.
To give you better context, F-150 has been an iconic brand for Ford and has been its best-selling vehicle in the US for a long time. Recently, the company took a major step and redesigned this flagship product with an aluminium body in order to save costs and improve fuel usage. It will begin arriving at dealerships in December. The change required a lengthy shutdown of its truck plant in Dearborn, Michigan, to retool, and the company is working with dealers and body shops to train them on the differences inherent in repairing aluminium.
In fact, as the company reports, one of the reasons that its quarterly revenue got hit was the shutdown of F-150 plant in Dearborn in order to execute the redesign and commence the production of the aluminium bodied trucks. Without doubt, the redesign of F-150’s body has gained considerable media attention and customers are eager to see the change, which is also expected to reduce the fuel costs for them. However, it is not feasible to comment on the acceptance of this change and how it will add to company’s bottomline in the future. Once the remodelled F-150’s hit the dealerships in December, will we know the actual potential of the redesign efforts undertaken by the company. The company has said that the launch of the aluminium-bodied F-150 is on track, and it has completed about half of 23 global introductions planned this year.
Now that I have covered F-150 exhaustively, it is time to discuss about the Lincoln brand in brief. Lincoln, a storied Detroit brand which Ford has owned since 1922, has been in a swoon for the past two decades, leaving dealers and customers wondering if Ford management had left the brand for dead. However, CEO Mark Fields has now committed to a multiyear, multi-million dollar overhaul of the Lincoln brand which includes a significant investment in a new premium vehicle platform that will underpin several future Lincoln vehicles. The revival effort is backed by the first significant investment in Lincoln in years, one that will see every product redesigned or replaced over the next five years. This Reuters article exhaustively covers the management’s strategy with respect to its Lincoln brand and how it will impact Ford’s overall operations in the future.
Takeaway
As remarked by Mr Mark Fields, Ford has had a slow 2014 because of its efforts to position itself strongly in 2015. The improvement in the macroeconomic scenario is also a big reason that the company should innovate on its product portfolio. For now, the best thing for investors to do is to wait till the F-150 hits the dealerships in December and post the performance of the redesigned product, it will be a good time to assess an investment in the company. The company, no doubt has strong fundamentals backed by a solid management but a month’s wait will do no harm to investors.
