Here's Why Ford Motor Is Earning So Much for You

Margins matter. The more Ford Motor (NYSE: F  ) keeps of each buck it earns in revenue, the more money it has to invest in growth, fund new strategic plans, or (gasp!) distribute to shareholders. Healthy margins often separate pretenders from the best stocks in the market.  That's why I check on my holdings' margins at least once a quarter. I'm looking for the absolute numbers, comparisons to sector peers and competitors, and any trend that may tell me how strong Ford Motor's competitive position could be.

Here's the current margin snapshot for Ford Motor and some of its sector and industry peers and direct competitors.

Company

TTM Gross Margin

TTM Operating Margin

TTM Net Margin

 Ford Motor 16.1% 6.9% 5.1%
 Honda Motor (NYSE: HMC  ) 27.3% 6.9% 6.2%
 General Motors Company (NYSE: GM  ) 12.1% 3.7% 4.6%
 Toyota Motor (NYSE: TM  ) 13.0% 2.6% 2.5%

Source: Capital IQ, a division of Standard & Poor's. TTM = trailing 12 months.

Unfortunately, that table doesn't tell us much about where Ford Motor has been, or where it's going. A company with rising gross and operating margins often fuels its growth by increasing demand for its products. If it sells more units while keeping costs in check, its profitability increases. Conversely, a company with gross margins that inch downward over time is often losing out to competition, and possibly engaging in a race to the bottom on prices. If it can't make up for this problem by cutting costs -- and most companies can't -- then both the business and its shares face a decidedly bleak outlook.

Of course, over the short term, the kind of economic shocks we recently experienced can drastically affect a company's profitability. That's why I like to look at five fiscal years' worth of margins, along with the results for the trailing 12 months (TTM), the last fiscal year, and last fiscal quarter (LFQ). You can't always reach a hard conclusion about your company's health, but you can better understand what to expect, and what to watch.

Here's the margin picture for Ford Motor over the past few years.

Source: Capital IQ, a division of Standard & Poor's. Dollar amounts in millions. FY= fiscal year. TTM = trailing 12 months.

(Because of seasonality in some businesses, the numbers for the last period on the right -- the TTM figures -- aren't always comparable to the FY results preceding them.)

Here's how the stats break down:

  • Over the past five years, gross margin peaked at 16.1% and averaged 10.5%. Operating margin peaked at 6.9% and averaged -1.3%. Net margin peaked at 5.1% and averaged -2.5%.
  • TTM gross margin is 16.1%, 560 basis points better than the five-year average. TTM operating margin is 6.9%, 820 basis points better than the five-year average. TTM net margin is 5.1%, 760 basis points better than the five-year average.

With TTM operating and net margins at a 5-year high, Ford Motor looks like it's doing great.

If you take the time to read past the headlines and crack a filing now and then, you're probably ahead of 95% of the market's individual investors. To stay ahead, learn more about how I use analysis like this to help me uncover the best returns in the stock market.  Got an opinion on the margins at Ford Motor? Let us know in the comments below.

Seth Jayson had no position in any company mentioned here at the time of publication. You can view his stock holdings here. He is co-advisor of Motley Fool Hidden Gems, which provides new small-cap ideas every month, backed by a real-money portfolio. General Motors is a Motley Fool Inside Value selection. Ford Motor is a Motley Fool Stock Advisor recommendation. The Fool owns shares of Ford Motor. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 09, 2011, at 12:06 PM, motto12345 wrote:

    Dear Sirs: To properly track gross margins for a manufacturer like Ford requires examining cost of goods sold as a percentage of revenue from period to period. A few years back, Ford's COGS was 100% of revenue. By 12-31-10 this was reduced to 87.5%. At year end 2011, Ford will close two manufacturing plants, Twin Cities (Ranger Pick-up) and Ontario (Crown Vic and Grand Marquis). Combine this with 1) the fact that 2/3 of all costs in cogs is parts costs for Ford, and 2) that the number of common parts for Fiesta and Focus throughout the world is expected to rise to 65% and 80% (in the case of Focus) projects that COGS will drop to 85% of revenue or better by 2012. Also further plant consolidations (such as Chicago plant Louisville, and Michigan Assembly) will also contribute to lower COGS as a percent of revenue. Finally product development costs and other structural costs will continue to be spread over larger volumes of production per model/platform throughout the world. Ford's target goal of COGS to revenue is 75 to 80% over the next five years, to equal Honda's and Toyota's.

  • Report this Comment On March 09, 2011, at 12:55 PM, pryan37bb wrote:

    Did I miss something? Ford just pulled back 20%, I'm getting slaughtered here. The people making money here are the ones who bought two years ago. And Alan Mullaly, of course.

  • Report this Comment On March 09, 2011, at 8:46 PM, morningstara wrote:

    What does this mean for the small investor who followed Fool's recs and bought Ford, and now I have LOST so much....should I hold on and hope it rises or get out now? If this is such a good stock, WHY is it continuing to FALL????

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