Monday, July 25, 2011

Ford Motor Co. (NYSE: F): Q2 Earnings Preview 2011

Ford Motor Co. (NTSE: F) is scheduled to release its second-quarter earnings before the opening bell on Tuesday, July 26, 2011. Analysts, on average, expect the company to report earnings of 60 cents per share on revenue of $31.59 billion. In the year ago period, the company reported earnings of 68 cents per share on revenue of $28.80 billion.

Ford Motor Company designs, develops, manufactures, and services cars and trucks worldwide. Ford and its subsidiaries also engage in other businesses, including financing vehicles. The company has posted $9.28 billion in profits in the past 2 years after incurring losses of $30.1 billion from 2006 to 2008. 

In the preceding first quarter, the Dearborn, Michigan-based company's net income was $2.6 billion, or 61 cents a share, compared to $2.1 billion, or 50 cents a share, in the year-earlier quarter. On an adjusted basis, the company earned 62 cents a share in the latest quarter. Total company revenues rose to $33.1 billion from prior-year quarter's $28.1 billion. Analysts, on average, expected the company to report earnings of 50 cents per share on revenue of $30.64 billion.

At its last earnings call in April, Ford said that quarterly results later in 2011 may not be as strong as its first quarter. The company cited lower expected profit at its Ford Credit unit, increasing commodity costs and investments in long-term growth plans. Ford forecast a smaller year-over-year production increase in the second quarter than the 14 percent gain through March. North American output in the second quarter may rise 8.7 percent to 710,000 units, and production may fall in all other regions from the year-earlier period, Ford said.

Industrywide U.S. vehicle sales slowed in the quarter because of costlier cars and shortages after the March 11 tsunami in Japan. Chief Executive Officer Alan Mulally is raising prices for Fiesta subcompacts and Explorer sport-utility vehicles to offset some of the $4 billion in higher costs for commodities, advertising and new-product development.

On the bright side, the company has benefited from the strength of its new products, consistently better performance at Ford Credit as well as a recovery in the North American automotive market. Unlike GM and Chrysler, Ford did not go through bankruptcy and receive billions of dollars of government loans to enable it to survive and restructure. The company went for a total overhaul of the company's product lines and technology during difficult times.

Recently, Ford said that it expects global sales to expand by 50% to 8 million vehicles by 2015 given the potential growth in Asia, mainly China and India; and rising demand for small cars. The automaker anticipates small cars to account for 55% of the total sales by 2020 compared with 48% presently. One third of the small car sales is expected to come from Asia. Ford has embarked upon an aggressive expansion plan in China that includes plans to triple its lineup in China by introducing 15 models, including the Kuga small sport utility vehicle by 2015. In order to develop these new models, Ford will build new plants raising its capital spending to about $6 billion annually by mid-decade from $3.9 billion in 2010 and the projected $5.5 billion in 2011. In order to support the increasing sales, Ford also aims to triple its dealership to 340 in India and double in China (adding 100 dealerships this year) to 680 by 2016. The company plans to expand its production capacity in China to 1.1 million vehicles by 2012. It will spend $1.6 billion to build 4 plants in the country by 2012. Ford has been gearing to catch up with its rivals in the world largest auto market. Currently, the automaker holds 2.4% of the passenger-vehicle market in the country. Ford’s sales in China grew 40% in 2010 driven by higher sales of Focus compact and Fiesta subcompacts. 

Ford is also rigorously working to reduce debt. By 2015, Ford also plans to cut its debt level to $10 billion from $16.6 billion at the end of the first quarter. The company expects the move to help regain investment-grade credit rating. The company is likely get back the investment grade rating in 2012, or by the end of 2011. An investment grade rating would allow Ford to sell bonds to a large number of institutional investors forbidden to invest in junk bonds, which would likely lower Ford's cost of borrowing.

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