Will Ford Motor Company Earnings Drive Higher Tuesday?

Ford Motor Company (NYSE: F  ) will release its quarterly report on Tuesday, and investors have started to get somewhat anxious about the auto giant in recent months. Even though the health of the U.S. auto market led rival General Motors (NYSE: GM  ) to initiate its first post-bankruptcy dividend, Ford earnings could actually drop year-over-year this quarter and even potentially post a full-year drop in 2014 compared with its stellar 2013.

Ford retains its mark of distinction for surviving the financial crisis without a government bailout, unlike General Motors and Chrysler. Yet the plunge in the Japanese yen against the U.S. dollar has given Toyota  (NYSE: TM  ) , Honda Motor (NYSE: HMC  ) , and smaller Japanese makers a new competitive advantage over Ford and GM, and that could cause problems for profits down the road. Already, Ford has predicted that pre-tax earnings would fall in 2014, but the real question investors must ask is whether the big acceleration in global launches will pay off in long-term gains for Ford. Let's take an early look at what's been happening with Ford over the past quarter and what we're likely to see in its report.


Source: Ford.

Stats on Ford

Analyst EPS Estimate

$0.28

Change From Year-Ago EPS

(9.7%)

Revenue Estimate

$35.15 billion

Change From Year-Ago Revenue

1.9%

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance.

Will Ford earnings really fall this quarter?
Analysts have responded to Ford's own comments by reducing their views on Ford earnings substantially, with almost a 25% writedown in fourth-quarter estimates and a 20% decline in full-year 2014 projections. The stock has responded unfavorably, falling 9% since late October.

Ford's third-quarter earnings report continued its solid run of success, with revenue soaring 12% while its roughly 20% rise in pre-tax earnings set a new record for the third-quarter period. Losses in the long-troubled European division continued to narrow, and Ford scored market-share gains in all of its regions, posing an even bigger competitive threat to General Motors, Toyota, and its other peers.

But Ford's outlook for 2014 is a lot cloudier than investors would like. CFO Bob Shanks said that he expects Ford's pre-tax profit to fall this year, pointing to pension obligations, product recalls, and emerging-market woes as potentially weighing on Ford's earnings. Given the plunge we saw in the stock market due to emerging-market currency concerns in recent days, Ford's concerns seem especially justified, and investors shouldn't be too greedy after the huge gains that they've cashed in on over the past five years.

In the long run, though, Ford has plenty of positives to look forward to. Perhaps the biggest is that average vehicle ages remain extremely high, pointing to an eventual avalanche of future sales whenever consumers decide to turn pent-up demand into greater purchasing activity. Another factor will be the 23 product launches Ford expects to make in 2014, including 16 in North America. Those launches will boost Ford's marketing and transitional costs, but if successful, they could become the major catalyst that gets more buyers into showrooms in the years to come.

Moreover, Ford will continue to benefit from the leadership of CEO Alan Mulally at least through the end of 2014. Speculation that Mulally might leave to take the CEO job at Microsoft made concerns about his eventual transition much more immediate for Ford investors, but all signs now point to a more orderly succession that will hopefully lead to a smooth transfer of power in Ford's executive suite.

In the Ford earnings report, look to see whether the company is able to give more color on how its product launches could eventually boost long-term earnings projections. While many investors will focus on short-term headwinds, conditions continue to look favorable for Ford's long-run future.

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  • Report this Comment On January 26, 2014, at 11:33 AM, spawn44 wrote:

    No indication the sell off will hold water. A good time to pick up some more shares.

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