Ford Motor Company's Biggest Hurdle Shows up in the Fourth Quarter

2013 was an incredible year for the folks at the Blue Oval, however, one problem continues to hold back its overall turnaround.

Jan 31, 2014 at 11:00AM

Ford (NYSE:F) posted one of its strongest yearly performances in its history in 2013. 

"The company had an outstanding year, earning a profit that was higher than last year's strong performance and one of our best years ever," said Bob Shanks, Ford's executive vice president and CFO. "Our results were driven by record profits in North America and Asia Pacific Africa, improved results in Europe and another solid year from Ford Credit."

But the stock price has seemingly been stuck in neutral over the past few years. One of the biggest factors behind Ford's performance has been massive losses in Europe, and those losses mounted again in the fourth quarter compared to the previous quarter. Is that a reason to panic? I don't think so. Here are some factors to consider, and what we can expect going forward.

F Chart

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Is Europe better or worse?
Europe's market remains in dire condition, although Ford seems to be making the best of things with its restructuring plan. In the fourth quarter, wholesale volume was down 3% from a year ago, but due to newer vehicles and a favorable mix Ford was able to grow its revenues by 10%. Ford's margins improved by 80 basis points from 2012 to 2013, but it wasn't enough to prevent posting a fourth-quarter loss of $571 million.

Ford

While that is certainly a regression from the previous quarter, a better comparison for losses in Europe is the prior year's fourth quarter, where losses reached $732 million. In addition to the automaker's improvement from a year ago, there are other factors to consider that make the losses in the fourth quarter sting a bit less.

Ford's CEO Alan Mulally explained that there was about $110 million of different one-time charges in the fourth quarter. In addition to that, there is about $115 million of seasonality built into the larger fourth-quarter losses -- mostly timing on restructuring costs that were higher in the latest quarter.

Looking ahead
Investors should keep in mind that while the results in Europe are unfavorable, Ford is still well positioned to take advantage of a rebound, when it happens. Consider that 43% of Ford's vehicles sold in the region last year were all new or significantly refreshed models. Keeping a fresh and popular lineup of vehicles will be key to Ford maintaining its margins and market share, even amid a weakened market. Many investors forget that Ford is the second-best-selling brand in Europe and that its retail shares grew a healthy 14% in 2013.

Also, we have to keep in mind that 2013 was actually a surprising step in the right direction. This year was supposed to be the bottom for Ford's losses in Europe, and the company originally predicted its losses would reach $2 billion. When all was said and done, losses checked in at $1.6 billion, $144 million better than last year. That's still a huge amount of loss straight off the company's bottom line, but it's a work in progress.

Management still expects to lose less money in 2014 and break even in Europe in 2015, and this year's rollout of at least seven new models in the region should help maintain margins and retail market share. While Europe is still a work in progress and a huge drag on earnings, I'm confident Ford's brand position and new vehicle launches will bring investors well-deserved progress in 2014.

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Daniel Miller 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.

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