Are Ford Motor Co.'s Recent Sales and Earnings Numbers a Warning Sign?

Ford’s recent earnings and sales numbers were disappointing, but will the automaker continue to disappoint in the future?

May 26, 2014 at 2:34PM

Automobile manufacturers such as Ford (NYSE:F), General Motors (NYSE:GM), and Chrysler have realized a resurgence since the recession ended in 2009. Ford seemed to have outperformed its rivals out of the gate, but recent data suggests that Ford may be losing market share to the competition.

Ford unlike its competitors in April
Ford reported that sales dropped 1% year over year in April to just short of 142,000 vehicles. Edmunds.com had projected that Ford's sales would increase 4.6% in April. Ford's competitors, meanwhile, did not see corresponding sales declines. General Motors reported that sales in April increased 7% from the prior year to just over 254,000 vehicles. Chrysler, which is now a division of Italian company Fiat, reported a 14% increase to 178,652 vehicles sold.

Ford's recent results foreshadowed April declines
In the first quarter of 2014, Ford reported net income of $989 million, or $0.24 per share -- a drop of $622 million from 2013's first quarter. Revenue increased $300 million, from $35.6 billion in 2013's first quarter to $35.9 billion in the opening three months of this year. Ford's results for the quarter were negatively affected by safety recalls, declines in the number of vehicles sold, and decreased revenue in North and South America. The number of cars sold in North America decreased 2% and revenue dropped 5%. South America declines were even harsher: the number of cars sold fell by 8% and revenue decreased 18%

In sharp contrast to those numbers, the number of vehicles sold in Europe increased by 11% and revenue rose by 18% in 2014's first quarter. Meanwhile, vehicles sold in the Asia-Pacific increased by 32%, with a 45% increase in China alone in the same quarter.

It is important to note that Ford's first quarter income was affected negatively by factors unrelated to its underlying business. First, the automaker recorded a $122 million expense related to its ongoing efforts to restructure its European business. Given its performance in Europe in the quarter, Ford is doing a good job of transforming its business on the continent. Second, Ford's results were adversely affected by exchange rates when converting South American currencies to U.S. dollars. Furthermore, a vast portion of Ford's expenses in the quarter were related to marketing and promotion expenses related to its new vehicles. Ford reported that these charges decreased its income by about $900 million or $0.17 per share. Therefore, investors should not get too worried about Ford's underlying business of producing quality cars.

While the U.S. business continues to have the greatest effect on Ford's results, the company is reaping benefits from its expansion in foreign markets and is diversifying its business model.

The competition
Chrysler's first-quarter 2014 revenue increased by 23%, to $19 billion from $15.4 billion in the year-ago period. The number of vehicles sold also increased by 10% to 621,000, from 563,000 in the year ago period. Its U.S. market share rose to 12.5% from 11.4% in 2013's first quarter.

General Motors' revenue for the 2014 first quarter increased to $37.4 billion from $36.9 billion, while its market share in the U.S. declined from 17.7% to 17%. GM's continuing recall woes hurt earnings per share, which fell to $0.06 in 2014's first quarter from $0.58 in the year-ago period.

In all, Ford's competitors at home were either taking share from the Blue Oval or increasing their revenue by other measures.

A big departure
Ford announced earlier this month that CEO Alan Mulally would step down in July, to be replaced by COO Mark Fields. Mulally led Ford through the financial crisis and ensuing recession, and he famously turned down government bailout funds even as General Motors and Chrysler were forced into bankruptcy and bailed out by Washington. Mulally's departure from the top spot is a big loss for Ford, and Fields will have a tough job in filling his shoes.

Can Ford bounce back?
Ford remains one of the most recognized names in automobiles, and in business in general. The company is also an emblem of America's industrial past and its continuing ingenuity. It does, however, have to compete with rivals both foreign and domestic.

The company under Mulally generated a lot of goodwill with the American public for its actions during the financial crisis. It should take advantage of this and aim to refresh those strong feelings, particularly the pride in a company that did not need a bailout. Further, Ford should get aggressive in its marketing as its top domestic competitor, General Motors, deals with its major recall issues.

Foolish takeaway
Ford's investors should not be too worried as its revenue actually increased in the quarter and the company remains highly profitable. As an automaker, its fortunes are tied to economic cycles, but Ford is not showing signs of a drastic down tick in sales and ensuing losses. Its sales dropped in the Americas, but Ford's business in Europe and Asia-Pacific picked up by a wide margin. As mentioned earlier, its sales in China jumped by almost 50% in the quarter compared to last year's quarter. Moreover, Ford is expanding its operations and diversifying its car sales around the globe. Therefore, Ford's recent results are not a harbinger of misfortunes on the way.

OPEC is absolutely terrified of this game changer
Imagine a company that rents a very specific and valuable piece of machinery for $41,000 ... per hour (that's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report reveals the company we're calling OPEC's worst nightmare. Just click HERE to uncover the name of this industry-leading stock... and join Buffett in his quest for a veritable LANDSLIDE of profits!

Andrew Sebastian has no position in any stocks mentioned. The Motley Fool recommends Ford and General Motors. 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers