Last year is widely expected to be one of the best years in Ford's (NYSE:F) history, with revenue projected to have grown about 10% and gains in market share achieved in all regions other than Europe. Ford doubled its dividend early last year, strengthened its balance sheet, and is now considered "investment grade" by four of the major rating agencies. One of the biggest developments was that Ford also managed to cut its $18.7 billion underfunded pension status by nearly half – perhaps around the $10 billion mark – which is a huge win for investors. With all that occurring in the recent past, what now are the two main developments investors should watch for in 2014?
The intense speculation of whether Ford CEO Alan Mulally will stay through 2014 has garnered a huge amount of attention from the media. Microsoft will likely announce its successor to CEO Steve Ballmer in early 2014 and Mulally has long been considered a top candidate to take control.
Mulally has done nothing to deny interest in the job, merely stating that he enjoys working at Ford and is slated to stay through 2014. Now, as a longtime shareholder, this doesn't rank high on my list of things to worry about – though it ranks up there with most potential investors. Mulally and his team has done a phenomenal job turning around a company that had lost over $30 billion between 2006-2008, to turning a profit in 2009 while Chrysler and General Motors filed for bankruptcy.
Mulally has also done a great job of improving the corporate culture at Ford, and groomed his likely successor, Mark Fields, to seamlessly take the helm when the time comes. For that reason, there's no need to worry about a plan for succession until late 2014. However, investors will be glad once the announcement comes and removes some uncertainty from the situation.
Some investors ran for the door last month when Ford announced that it expects pre-tax earnings to be lower in 2014, compared to 2013, which was one of the best in its history. The difference isn't catastrophic: Investors will likely see Ford post pre-tax earnings of $8.5 billion for 2013, while in 2014 the range is expected to be between $7.0 billion and $8.0 billion. Investors should also keep in mind that Ford has beaten expectations six out of the last seven quarters.
The main culprit for the lower pre-tax earnings guidance is that Ford plans to more than double its global launch schedule from 11 models to 23. These launches come at a significant cost between changing plant operations, tooling, marketing, inventory management, and a multitude of other costs. However, investors can expect these costs to pay off in improved revenue and cash flow maybe as soon as 2015 and throughout the remainder of the decade.
Now, what investors need to watch in 2014 is how this intense vehicle rollout schedule is handled. Take Ford's launch of the Lincoln MKZ early last year as an example of what we don't want to see. Sales plunged early in the year because supply issues and inspection bottlenecks wouldn't allow enough of the hyped luxury sedans to reach the market. This lasted for months, causing some customers to take their names off the waiting list and frustrations to mount at dealerships.
The newest model of the F-150, Ford's most profitable and important vehicle, is likely to debut next week at the Detroit Auto Show and hit the showrooms this year. If a situation akin to that which afflicted Lincoln last year were to arise with the 2015 F-150, it would be devastating to Ford's top- and bottom-line profits. Launching 23 vehicles globally can be risky; however, if all goes well, 2014 could be even better than expected. I didn't head for the exits like some investors last month because I believe Ford is ready to pull this off in 2014, but I'll definitely be keeping a close eye on these two developments.