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

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.

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Comments from our Foolish Readers

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  • Report this Comment On May 27, 2014, at 12:04 AM, CoreAndExplore wrote:

    Great write-up on Ford's current situation. Ford was increasing market-share in the states until very recently; I wonder what the impetus behind that shift has been? Hopefully, Fields can take advantage of GM's recent recall woes and boost sales at home.

  • Report this Comment On May 27, 2014, at 6:50 AM, sofiacaden wrote:

    We must also know the fact that hedge funds in the US have taken most long positions in the GM and is the most popular stock for the institutional investor which explains their confidence in the company

    despite several recalls http://bit.ly/TP1AGq

  • Report this Comment On May 27, 2014, at 11:03 AM, funfundvierzig wrote:

    Many savvy investors managing hedge funds have bailed out of the shares of the fraud-troubled General Motors. For example, Warren Buffett dumped 10 million GM shares in Q1 2014, or 25% or his shares. No one knows what he is doing n Q2 with respect to his position in GM, post March 31, 2014.. General Motors is the Bank of America of car-makers, and consequently is fraught with all manner of big, unknown and known risks. ...funfun..

  • Report this Comment On May 27, 2014, at 12:19 PM, LouisTewl wrote:

    @ Andrew - you state, "Mulally led Ford through the financial crisis and ensuing recession, and he famously turned down government bailout funds"

    Well, that's simply not true, although blue-oval pumpers famously continue to say it. For the real story, look here:

    http://www.forbes.com/sites/joannmuller/2012/08/29/automaker...

    They took $5.9 BILLION dollars in June 2009, the same month GM filed for bankruptcy, and the first $550 Million dollar payment was due in September, 2012. The full amount is due in 2022.

    So those people who refer to GM as 'Government Motors,' and say they "will never buy a GM car ever again," are indulging in the simplistic thinking that is all-too-common today, and which Ford is more than happy to exploit.

    They benefited both from the government money and from the resulting increased sales to people who buy their cars because they mistakenly believe they didn't!

    Chrysler, however, fully paid off their $7.6 Billion TARP loan in 2011, SIX YEARS EARLY - Read here:

    http://blogs.ajc.com/jay-bookman-blog/2011/05/25/a-revived-c...

  • Report this Comment On May 27, 2014, at 12:34 PM, TMFTwoCoins wrote:

    @LouisTewl

    I don't mind people pointing out Ford's $5.9 billion loan but I wish it was done with more context. Yes it took the government loan, though it wasn't to help save the company during dire times, as Chrysler/GM's TARP loans were intended. Ford's $5.9 billion was to help automakers produce greener/electric vehicles faster.

    Yes, Ford does still have to pay this loan back. However, Ford also took its own loan out, putting its namesake Blue Oval logo as collateral, for roughly $26 billion in loans to help save the company during dire times. It's since paid that back in full, with interest.

    I think that helps put the loans in a perspective, for people on both sides of the argument.

  • Report this Comment On May 27, 2014, at 12:35 PM, LouisTewl wrote:

    Further, according to you, Ford investors should all take comfort because "Ford's business in Europe and Asia-Pacific picked up by a wide margin."

    Really? I, for one (although I am not a Ford shareholder), would sure like to see some statistics to back that rosy view up, because I have seen reports cautioning about stagnancy in the European market.

    However, as a FCA shareholder, I am not overly worried in that regard because the Fiat factories are back at full production building the new Jeep Renegade for the U.S market, as well as for other markets around the world.

    However, regarding the European market, Jeep is the official sponsor for the upcoming Rolling Stones 14 country European tour? Check it out here:

    http://www.noodls.com/view/E66A5F12ED68417E305DD131EE5737B7F...

    That's a lot of European eyes on Jeep, and they're eyes with money, not people buying Ford Yugos.

    Fool On.

  • Report this Comment On May 27, 2014, at 1:14 PM, LouisTewl wrote:

    OK, sure, if you want to tell yourself that, go ahead. Ford took $5.9 B, Chrysler took $7.6 B, at the same time. Chrysler paid their loan back in 2011. Ford? 2022.

    Also, what you neglect to mention is that Ford took that massive loan out IN 2006 - THREE YEARS BEFORE the TARP program, and Ford didn't just have to put up its "namesake Blue Oval" (like that would be worth $26 BILLION dollars) as collateral, it had to pledge virtually ALL its U.S. assets, including all its factories and other trademarks like Mustang and F-150.

    So all that story REALLY shows is how far Ford had run the company down BEFORE the great recession - it doesn't rate them some kind of simplistic mis-placed loyalty as a "Great American Car Company," all it does is show how far they had to go to avoid bankruptcy.

    As far as the REAL story of 2009, let's read here, at a site called, appropriately enough, 'FactChecker.org':

    http://www.factcheck.org/2011/09/ford-motor-co-does-u-turn-o...

    Finally, here's more perspective to burst the 'Blue-Oval Worship' bubble, from 2011:

    http://www.forbes.com/sites/joannmuller/2011/09/19/ford-look....

    So, again, you can believe whatever you want, just please don't try to (yet again) pull the wool over investors' eyes with TMF's typically pro-Ford and GM/anti-FCA propatorials.

    Fool On.

  • Report this Comment On May 27, 2014, at 1:29 PM, FordMan26 wrote:

    It's probably a valid point that in the end it doesn't matter who a company borrowed the money from to get them through the recession and restructure, but more the timing of the loan, the quantity borrowed and the extent of change that took place as a result. I believe people give Ford a pat on the back not because they were in any better shape than GM before the recession, but because they realized their mistakes and started working to fix them sooner. I think it's also a testament to Ford to see the relative size of the companies 5yrs later, with Ford still being close to the same market share as pre-recession (in splite of killing Mercury and dragging it's feet to fix Lincoln) whereas GM is considerably smaller than before.

  • Report this Comment On May 27, 2014, at 11:20 PM, LouisTewl wrote:

    @ FordMan - OK - "Realized their Mistakes" ?! They had no other choice because if they were staring bankruptcy in the face, and it had nothing to do with the Recession.

    Yes, Ford has recovered. So has Chrysler. BOTH did so as a result of GOVERNMENT LOANS.

    As far as with "close to the same market share" - is that another one of your comforting generalities?

    They sure don't have the same market share in the luxury car market, having sold Volvo, Range Rover, and Jaguar, all at steep losses.

    The main, and I would posit, only difference between how Ford and GM handled their respective falls from grace is this:

    The Ford family was, and is, still the majority shareholder, and they were not wanting to lose the wealth that comes from their ownership stake in the company.

    So how Ford managed the situation is not a reflection of any patriotism, rugged individualism, anti-government/"socialism" or any other "ism" it was simply a function of the majority shareholders wanting to protect their interests and their private family wealth.

    Bill Ford himself has said publicly that they actually thought that the public perception would be NEGATIVE, and they had no idea that they would be lauded by people, and that that aspect was not even a consideration in why they handled the eleventh-hour salvaging their 50-year-long mismanagement the way they did.

    So, again, believe what you will, it's your choice - but, please, don't mislead investors who aren't reading your articles because of your loyalties, or because of TMF's long position in Ford, but who are actually trying to make money in the stock market.

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