Ford (F +1.84%) reported its best sales month since 2006 on Wednesday. The company has been firing on all cylinders lately, and the stock is up by more than 30% in 2013. The ride is far from over, though. Thanks to strong demand in different segments, an improved product portfolio, and growth opportunities in China, this iconic American automaker has plenty of gas left in the tank.
Firing on all cylinders
Ford's total sales grew 12.4% year over year in August, excluding the discontinued Ranger and Crown Victoria. Retail sales in the U.S. were up by a remarkable 20%, marking the best retail sales month for Ford since August 2006. Performance was strong across the board: Car sales were up 15%, utilities increased by 16%, and trucks were up by 30%.
Sales of the F-Series totaled just over 71,000, which represented a 22% increase over August 2012 and was the highest August reading since 2006. This was the 25th consecutive monthly increase, and the second time this year that sales have topped 70,000 vehicles.
Fusion had a strong month, with 24,653 vehicles sold, and Ford's small cars also did very well, with a 30% increase to combined sales of 30,148 vehicles. C-MAX hybrids contributed 44% of Ford's small car growth during the month, and Fiesta sales increased by 61%, for a record August.
Building better products
Ford was by no means the only automaker doing well in August; its Japanese competitors delivered even stronger figures, with Honda (HMC 0.74%) and Toyota (TM 0.07%) reporting sales growth of 27% and 23%, respectively. The biggest U.S. automaker, GM (GM +1.53%), reported a 15% increase in overall sales and 22% growth in US retail sales, suggesting that consumers' healthy demand for vehicles is providing a strong tailwind for different players in the business.
Beyond this more favorable market for its cars, Ford has dramatically improved the quality of its products over the last years. Especially in midsized vehicles, the company is gaining a lot of ground against Honda and Toyota.
Ford has always been an undisputed leader in light trucks; the F-Series has been America´s best-selling vehicle for 36 consecutive years. GM gained some market share over the last few months, providing generous incentives on its old models as the company introduces its new pickups. But Ford´s rock-solid reputation in that segment means that the company will most likely continue generating big profits from the F-Series in the coming quarters.
The big-game changer over the last years has been the company´s ability to effectively compete against Japanese manufacturers with smaller, more efficient, vehicles. The Fusion has been a big success for the company, gaining market share versus Toyota Camry and Honda Accord while also improving consumers´ perception about the brand and the quality of the products that Ford manufactures.
Ford has been operating near full manufacturing capacity for a while now. This has a positive effect on profit margins, since it keeps fixed costs low, but tight inventories for products like Fusion, Focus, and Explorer also limit Ford's potential to grow sales and gain market share. As Ford increases production to keep up with demand, the company could continue gaining share versus the competition over the next several quarters.
China growth
Ford is well behind the competition in China, but the company is rapidly making up for lost time in the biggest car market in the world. Ford sold 71,183 wholesale units in August, an increase of 46% versus last year. From January to August, the company sold 551,738 wholesale vehicles in China, up 50 % from the same period last year.
GM is much bigger than Ford in China, and even if it's not growing as fast, the company is doing quite well in the country. General Motors and its joint ventures sold an August record of 245,799 vehicles in China, an 11.2% increase versus the same month last year. For the first eight months of 2013, sales by GM and its joint ventures in China rose 10.7% to 2,034,771.
Japanese competitors, on the other hand, have been facing declining sales in China over the last months due to anti-Japanese sentiment among Chinese consumers because of territorial disputes between the two countries. It´s hard to tell how long these kinds of factors may last, but while they do, Ford is gaining market share versus Honda and Toyota in such a key market.
Ford has big ambitions in China. The company plans to spend $5 billion in new plants over the next five years, and bring 15 new vehicles to the country by 2015. Management believes that China and India combined could account for 40% of the company´s sales by 2020 versus 15% of sales today.
Bottom line
Ford has made a remarkable comeback since the financial crisis, not only when it comes to the quality and efficiency of its vehicles, buy also on the financial front. Unlike its domestic rivals, the company managed to go through the financial crisis without government help, debt levels have been notoriously reduced, profit margins are on the rise and Ford is now free to distribute capital to shareholders.
The company doubled its dividends to $0.10 per share this year, and the stock is currently paying a 2.5% dividend yield. Ford is trading at a forward P/E ratio below 10 -- hardly an expensive valuation, especially for a company which has made such an amazing turnaround over the last years, and which continues delivering new sales records.
Strong truck sales in the U.S., market share gains in smaller vehicles and growth opportunities overseas mean that Ford is well positioned to continue delivering solid returns for investors in the middle and long term.
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