Ford's (NYSE:F) U.S. sales were up 13% in June, thanks to very strong pickup sales – and to sales of smaller cars and SUVs, an area that has become a surprising source of strength for the Blue Oval.
Ford's results beat the analyst consensus estimate of 12%, according to Bloomberg. And digging into the numbers, it's looking like the economic factors driving Ford's recent sales increases will continue to drive gains for a while longer.
That's good news for Ford's profits. Here's why.
Why small cars now mean big profits for Ford
Ford sales analyst Erich Merkle said on Tuesday that a couple of key economic factors are driving sales trends in the industry that happen to benefit Ford in particular. First, consumers making new-vehicle purchases are choosing smaller cars and SUVs. Many are replacing vehicle that were bought several years ago, when fuel prices were lower – and that means that overall demand for smaller and more fuel-efficient vehicles is up.
That helps Ford, because the company has placed a big emphasis on becoming more and more competitive in those parts of the market. Products like the Escape SUV, the Focus, and the Fiesta all include high-tech features that were traditionally the kinds of things found mainly in larger and more luxurious offerings – things like high-tech "infotainment" and navigation systems, as well as luxury features like heated seats.
As a group, sales of Ford's small cars (the Focus, Fiesta, and C-Max hybrid) were up 39% over last June's totals, and the Escape posted its best monthly sales total ever.
For consumers who are – for instance – looking to trade in a big SUV they bought in 2005 for something more fuel efficient, the luxury-like features in an Escape help them feel like they're not stepping down in terms of driving experience. Ford's emphasis on premium interiors and high-tech features makes products like the Escape and the Focus feel more luxurious than some of their competitors, and that gives Ford an incremental advantage with those kinds of buyers.
That emphasis has also helped boost Ford's profits. Premium features help Ford command higher prices, and options like the MyFord Touch system and deluxe interior features are high-margin items that add extra profits to those sales. That's one big part of how Ford has managed to raise its profit margins in North America to well over 10%, among the highest in the business.
Here's another big part: pickup sales.
Pickups are big business, and they're booming
Sales of full-sized pickups have been very strong in recent months, well ahead of the overall vehicle market. Merkle attributes that to upswings in new-home construction and in the energy sector. Both industries include many businesses that buy pickups for commercial use, and both are taking advantage of stronger business conditions to replace pickup fleets that in many cases have become quite old.
Ford's F-Series is the leading line of full-sized pickups, so any upticks in the segment generally mean good things for the Blue Oval. June was no exception: F-Series sales were up 24%, for the model line's best June result since 2006.
Pickups are among Ford's most profitable products, and because they sell in such big volumes (68,009 last month alone), the F-Series line is almost certainly the single biggest contributor to Ford's global bottom line. And in the last few years, Ford has become very good at boosting pickup profits with premium packages that, like the options on its smaller cars, add considerably to per-sale profits.
All this adds up to strong profits for Ford
June's results close out a quarter where Ford gained market share in the U.S., and did so with products that it has positioned to boost its profits. Ford is set to report second-quarter earnings later in July, and while the rest of the world remains a complicated story, the company looks likely to post strong earnings in its core North American division.
Fool contributor John Rosevear owns shares of Ford. The Motley Fool recommends Ford. The Motley Fool owns shares of Ford. 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.