Ford Motor Co. (NYSE:F) on Friday released its quarterly report for the first quarter of 2014, and right off the bat, investors latched onto the earnings miss that fell well below analysts’ expectations due to onetime special items and charges. On Friday, Ford’s stock finished lower 3.31 percent below Thursday’s close.
Special charges aside, Ford appears to have stayed on dry ground, as wholesale orders and revenue both saw growth. Despite the major headwinds on profit, the company still remained profitable overall.
“We had a solid quarter, and we are on track with our most aggressive product launch schedule in our history,” said Alan Mulally, president and CEO. “Our One Ford plan continues to deliver as we serve customers in more markets around the world with a full family of vehicles committed to best-in-class quality, fuel efficiency, safety, smart design and value.”
Europe made significant progress in its return to being profitable for Ford, and Asia Pacific continued to outperform.
“The underlying run rate of our business in the first quarter was strong,” said Bob Shanks, Ford’s executive vice president and chief financial officer. “We are particularly encouraged by Asia Pacific’s record profit, driven by very positive customer response to our new products, underscoring the traction and success of our growth plans in what is now the largest market in the world. In addition, the improvement in Europe confirms the progress we continue to make toward achieving a profit in 2015.”
Here are five notable factors to take away from Ford’s recently closed quarter.
1. Pretax profits declined
After 2013?s tremendous growth, abnormally cold and severe weather in much of the U.S. chilled Ford’s first-quarter results for 2014. Despite reporting pretax profits of $1.4 billion, its 19th consecutive profitable quarter, it was $765 million lower than the first quarter of last year, as Ford hit some headwinds in the form of costs pertaining to safety recalls and other product campaigns, as well as weather. Currency exchange challenges in South America also hurt Ford’s earnings, which came in at 25 cents per share after taxes — 16 cents below the year-ago period.
Net income for the quarter was $989 million, or 24 cents per share, a decline of $622 million, or 16 cents per share, from a year ago. This was negatively affected by pretax special item charges of $122 million for separation-related actions, primarily to support the European transformation plan, Ford said.
2. Fundamentals remained strong
Despite the costs that put a dent in earnings, Ford’s quarter revealed that systemic problems are not to blame for the shortfall. In reality, Ford’s operations remain strong, as wholesale deliveries grew by 6 percent and revenue improved about 1 percent from a year ago. Ford Credit is also in good shape, and Ford is committing $2 billion from its revolving credit facility to support Ford Credit’s liquidity.
Despite Ford‘s European operations reporting a first-quarter pretax loss of $194 million, it represents a $231 million improvement from a year ago. Ford says it’s on track to become profitable in the region once again by next year.
3. Asia Pacific is performing admirably
As Europe continues to get to its feet, Ford’s Asia Pacific operations continue to outperform and help offset the lesser-performing markets. “Asia Pacific reported a first quarter pre-tax profit of $291 million, an improvement of $319 million compared with a year ago, and a record for any quarter,” Ford said in its statement. “The improvement is more than explained by favorable volume and mix and higher royalties from joint ventures. Higher costs, including investment for future growth, were a partial offset.”
Market share in the region edged up by 0.7 percent, to 3.4 percent. The performance was largely driven by China and on the success of the EcoSport compact crossover, the Kuga SUV (what we know as the Escape), and the Mondeo sedan (the Fusion here in the U.S.).
4. Ford reached record levels of market share in China
As we wrote in our earnings preview, “though Ford’s growth rates have been through the roof in China, the actual volume of vehicles sold relative to its peers (General Motors, Volkswagen) has been quite low, implying there’s a much larger pool that Ford can dive into.” Ford’s wholesale volume in China increased by 45 percent from a year ago, as the firm’s Chinese market share grew by 0.9 percent to 4.5 percent, the best the company has ever seen in the world’s largest auto market. With Lincoln on its way later this year, that figure will likely continue to grow.
5. The best is yet to come
This year is poised to be Ford’s busiest in the last 100 or so years, if not ever, with 23 global product launches planned: 15 in North America alone. While some are catering to specific niche markets — the new Transit Connect, for example — others, like the radically redesigned F-Series, will have a much more profound impact on Ford’s bottom line.
However, 2014 isn’t the year that will benefit from the new model onslaught. This year’s rigorous unleashing of new cars is really setting up 2015 as the year that Ford truly benefits from all of the R&D expenditures and costs to roll out the new vehicles. Ford’s latest report shows that despite the special weather- and warranty-related items, as well as other factors, the underlying business is strong. Ford is still selling vehicles at a growing rate, which we expect will only continue to do so as consumers become excited by its new products.