Ford Motor Company's (NYSE:F) recent fourth quarter was one of the bright spots in its history. However, it's fair to say that it was also a step down in just about every statistical measure from the prior year, and likely not how Detroit's second-largest automaker would prefer to cap off 2016. Let's take a look at the details, some highlights, and where the automaker goes from here.
By the numbers
Ford's fourth-quarter revenue checked in at $38.7 billion, $1.6 billion below last year's comparable result but ahead of the consensus analyst estimates of $35.22 billion. Ford's adjusted earnings per share checked in at $0.30 during the fourth quarter, right in line with analysts' estimates. For the full year, Ford's total adjusted pre-tax results hit $10.4 billion, down about $400 million from the prior year. Full-year adjusted earnings per share reached $1.76, down $0.17 from a strong 2015.
Show me some financial highlights!
- Well, at least someone is benefiting: Employees represented by the United Automobile Workers union are receiving roughly $9,000 in profit-sharing payments for the full year, second only to last year's roughly $9,300.
- Ford posted record full-year performance in Europe with $1.2 billion pre-tax profit and operating margin of 4.2%. It also recorded its second-best full-year pre-tax result in Asia-Pacific (mostly driven by China) of $627 million.
- The company also posted its second-best automotive operating margin, with North America operating margin hitting 9.7% and China joint-venture net income margins in the double digits.
- Ford's operations outside of North America delivered a full-year profit of $421 million, roughly double the result recorded during 2015.
- Cash and liquidity totaled $27.5 billion; cash net of debt was $11.6 billion. The automaker returned $3.5 billion to shareholders through dividends and, to a lesser degree, share repurchases.
Show me some product highlights!
- In case you didn't hear, Ford's F-Series officially became the best-selling full-size truck in the United States for the 40th consecutive year, partially driven by the all-new Super Duty.
- Lincoln had a phenomenal year, with sales up 24% across the globe, including 17% gains in the U.S. and a tripling of sales in China; the latter market remains a massive catalyst for the brand, as Chinese consumers think more highly of the Lincoln brand than we do here in the States.
- In December, Ford launched its next-generation Fusion Hybrid autonomous development vehicle, which puts its test fleet size at 30 vehicles. Ford plans to triple the size of the test fleet to roughly 90 vehicles by the end of this year.
- In an attempt to bolster its smart mobility programs, Ford is going to expand its San Francisco-based Chariot to eight cities by the end of this year, including at least one city abroad.
What most investors overlook
Many investors overlook automakers' underfunded pension plans, which is a mistake, as they often represent billions in obligations. Ford has taken substantial steps since 2012 to pour capital into its pension fund to de-risk it. As a rule of thumb, when discount rates -- which set the standard for how much companies need to have in plan assets -- get lower, the requirement for capital increases. And despite discount rates lowering this year, Ford's pension plans remain underfunded by about the same as last year, at $8.9 billion, and remain at a very strong 96% funded.
Ford Credit has long been a competitive advantage for the company, and will by most accounts continue to be so. However, it is concerning that off-lease auction values have significantly declined. Consider that during the third quarter of 2015, Ford's 24-month off-lease values were $20,845 and that declined to $18,895 during the fourth quarter of 2016. Ford's 36-month off-lease values dropped from $17,815 to $16,240, during the same time frame. Down the road, if off-lease return values continue to decline, it could cause significant pain on Ford Credit's bottom line -- and don't forget that Ford Credit was the second-largest contributor to pre-tax profits during 2016, behind only the North America segment.
Ultimately, this was a historically strong quarter that managed to beat estimates on the top line and meet estimates on the bottom line. It's encouraging that Europe and Asia-Pacific continue to improve in terms of profitability, and that North America remains incredibly profitable due to accelerated sales of SUVs and trucks. As long as Ford continues to balance its supply of vehicles to demand and keeps incentives in check amid a plateauing U.S. market, 2017 should be another strong year.