Are Ford (NYSE: F ) shareholders in for a happy week?
The Dearborn, Mich., auto giant is scheduled to report first-quarter earnings tomorrow, and analysts are predicting strong results -- strong enough, some reports are suggesting, to stand as the company's best quarter since the late 1990s.
There's no question that Ford has been on a historic upswing since the dark days of 2008, and the Blue Oval even outsold ancient nemesis General Motors (NYSE: GM ) in the U.S. last month. But is it reasonable to expect a blowout quarter for any automaker in the face of rising gas prices and increasing economic uncertainty?
As a Ford shareholder, I'm certainly hoping for great news tomorrow morning. The company's stock price has been stuck in an unimpressive rut recently, thanks to a less-than-shiny fourth quarter and those queasy-making gas prices. But while surging fuel costs and general consumer angst may end up putting a damper on car sales in general, there are a few reasons to believe that Ford is well-positioned to post a glowing set of results.
The right product at the right time
Product is the key to everything in the auto business, and Ford enjoys particular strength here at the moment. Several of the automaker's key models are brand new or recently refreshed, and the company has timed its emphasis on fuel economy in every product line especially well. Strong new entries like the small Focus and Fiesta and the surprisingly fuel-efficient new Explorer have been gaining sales and market share as gas prices climb.
Japan's woes create an opportunity
While nearly all of the global automakers have felt the Japan disaster's effects on the automotive supply chain, it's no secret that giants Honda (NYSE: HMC ) and Toyota (NYSE: TM ) have been especially hard-hit, with one recent estimate suggesting that Toyota's production may be cut in half for months. Key fuel-efficient models from both automakers are in short supply, a situation that may continue for months. Some models, like Honda's Fit -- a direct Fiesta competitor -- have become increasingly hard to find at dealers, a situation that may be leading longtime import buyers to give the American brands a look. Ford's polished product line could capture an outsize share of these kinds of buyers. And the Japan disaster is unlikely to have a significant impact on Ford itself, CEO Alan Mulally recently told reporters.
Pricing power is rising
What happens when you have the cars people want, and your competitors don't? You can ask more money for them. Ford's per-sale profits are almost certainly up -- Edmunds estimates that Ford's average selling price was up 3.9% in the first quarter over the year-ago period. Shortages of Japanese cars and Ford's improving reputation for quality suggest that that trend could continue for a while.
Recent pressures have abated
Ford shares got clobbered after the company missed estimates last quarter, thanks to analysts' underestimation of the costs of new-product launches and the pressures of rising commodity prices. But those product launches are now fading in the rearview mirror as the products in question gain traction in the marketplace. Commodity prices remain high, but that's not an unknown at this point -- and those costs should be more than offset by Ford's improved pricing power.
Long story short, the pieces are indeed in place for a strong quarter. What could go wrong?
One small problem
Here's one point that the company will certainly discuss tomorrow: market share. Ford's board of directors set a goal of 14.1% of the U.S. retail auto market, which excludes fleet sales, by the end of the first quarter. According to federal filings, the company's actual share for the quarter was 13.6% -- a significant miss.
I think that's both good and bad news. The bad should be obvious, but here's the good: Mulally and other Ford executives have talked at length about the need to avoid resorting to big incentives to boost sales and market share totals. GM boosted incentives spending in February, but Ford stuck to its guns and held spending to a lower level. Did that result in a loss of share for the quarter? Probably. But while the devil will be in the details, I don't think it's a major worry.
And more to the point, for all the reasons outlined above, I think Ford's market share numbers are going to be looking awfully good before too long. Will the company's profits follow suit? We'll learn more tomorrow.