Ford Motor Co. (F, Financial) recently revealed its fourth quarter results for 2014, which has been a year of mixed fortunes for USA’s second largest automobile manufacturer. While share prices remained relatively flat through the year, Ford had to contend with below-par performances in Europe and South America. Further, share prices touched a two-year high of US$18 per share in the first half, only to plummet around 14 percent to US$15.50 a share towards the year-end. However, Ford’s performance was better than industry rivals Volkswagen (VLKAY, Financial), General Motors (GM, Financial) and Nissan (NSANY, Financial) in terms of share price, with the company’s shares trading at around $14.40 in the last week of January 2015.
Profitable quarter despite revenue and earnings slide
Ford announced a pre-tax profit of $1.1 billion for Q4 2014, down $197 million from the prior-year quarter. Revenues also slid 3% to $35.9 billion compared to $37 billion in the prior-year quarter. However, in spite of its pre-tax operating income of $1.12 billion for the fourth quarter of 2014 being almost 16 percent more than the year-ago quarter, Ford posted $6.3 billion in pre-tax profits, beating its September 2014 forecast of $6 billion for the full year. This was also the company’s 22nd successive profitable quarter in terms of after-tax earnings.
Although the fourth quarter saw Ford’s net income dip from $3.04 billion in the prior-year quarter to just $52 million, it should be noted that a huge chunk of the $3.04 billion, amounting to $2.1 billion, was generated as the result of a one-time special tax benefit in Q4 2013. Moreover, the company’s earnings took a one-time hit amounting to $800 million in 2014 due to an accounting system change in Venezuela to avoid future setbacks related to exchange rate fluctuations.
While Ford's Q4 earnings declined 16% to 26 cents a share, the earnings still managed to beat expert estimates by 3 cents a share. The company posted earnings of $1.16 a share for the full year 2014, down from $1.63 a share in 2013. Net income saw a drop from $7.2bn or $1.77 per share in 2013 to $3.2bn or 80 cents a share in 2014. Although revenues also fell from $146.9bn in 2013 to $144.1bn, a drop of almost 1.9%, they exceeded the consensus estimates drawn by experts for 2014.
New Launches, Global Challenges Impede Growth
Ford’s automotive sales in Q4 2014 declined to $33.8 billion owing to a 5.4% cut in production amounting to around 715,000 trucks and cars. While Ford’s fourth quarter profit margins for North America slid to 7.4% from 8.2% in the prior-year quarter, the company’s full-year margins fell from 10.2% in 2013 to 8.4% in 2014. Pre-tax profit fell from $963 million in the prior year to $713 million.
The decline in sales is mostly due to the company’s expensive efforts to re-launch its aluminum-bodied F-150 pickup, which is part of Ford’s F-series truck range that accounts for 90% of Ford’s worldwide automotive earnings. Last year also saw Ford launching a record 24 new models across the globe, including the all-new F-150, Lincoln MKC, Transit, Ka, Mustang and Escort, leading to reduced production and heavy expenditure.
Ford's international operations faced the brunt of exchange rate headwinds, economic slowdowns and restructuring of its accounting system. Of particular concern was the European and South American marketplace that saw the company lose around $443 million and $187 million respectively in the fourth quarter. The regions each also reported over $1 billion in losses for the full year 2014.
Revenues from Middle East and Africa fell 2 percent to $1 billion in 2014. However, the region recorded a pre-tax loss of $82 million, beating its performance from a year ago when pre-tax losses amounted to $104 million. In Asia Pacific, the company logged a pre-tax profit of $95 million for the fourth quarter, down from $109 million in the prior-year quarter. However, sales witnessed a 19% surge in China, where Ford delivered a massive 1.1 million vehicles on the back of a robust demand for its Mondeo sedan and Kuga SUV.
Outlook for 2015
This year is likely to be the year when Ford reaps the benefits of its growth strategies and international product investments. With a line-up of 15 worldwide vehicle launches, Ford expects pre-tax earnings in 2015 to be in the $8.5-9.5 billion range. North America, which contributed around $6.9 billion in pre-tax profit in 2014, is expected to continue enhancing Ford’s top as well as bottom lines in the years to come, on the back of favorable market trends and the company's enduring brand image in the US.
The company’s move in January 2015 to enhance its quarterly dividend by 20% to 15 cents per share has resonated positively with Ford’s loyal investor-base. Consensus estimates drawn by experts indicate a steady growth in Ford’s earnings per share across 2015 through to 2016, which should come as a relief to investors. Overall, 2015 could well offer Ford Motor Co. a smoother ride than its predecessor and investors would do well to hold on to their stock.
