Ford Beats, North America Fuels Growth

Ford Motor Co. (F - Analyst Report) posted a robust 55.0% rise in earnings per share to 31 cents in the fourth quarter of 2012 from 20 cents in the same quarter of 2011 (all excluding special items). With this, the company has beaten the Zacks Consensus Estimate of 26 cents as we expected due to the combination of the stock’s Zacks Rank #3 (Hold) and +3.85% ESP (Read: Zacks Earnings ESP: A Better Method).

Ford’s fourth-quarter pre-tax profit of $1.7 billion was the highest in a decade. Meanwhile, net profit surged 55.7% to $1.2 billion from $797 million a year ago. Thanks to the impressive North American results and, to some extent, solid improvements in Asia Pacific Africa operations.

Total revenue grew 5.5% to $36.5 billion on a 7.5% rise in wholesale volumes to 1.5 million units. It was higher than the Zacks Consensus Estimate of $33.2 billion.

Full Year Results

For full year 2012, Ford reported an 8.5% decline in profits to $5.6 billion or 6.6% fall in earnings per share to $1.41 (excluding special items). However, the company’s earnings per share exceeded the Zacks Consensus Estimate of $1.35.

Revenues in the year slid 1.5% to $134.3 billion on a 0.5% fall in wholesale volumes to 5.7 million units. It was higher than the Zacks Consensus Estimate of $125.1 billion.

Ford has decided to make profit sharing payments to approximately 45,800 eligible U.S. hourly employees under the United Auto Workers (UAW) union agreement. The company’s North American pre-tax profits of $8.3 billion will generate approximately $8,300 per eligible employee on a full-year basis.

Ford Automotive

Ford Automotive segment registered a 5.8% rise in revenues to $34.5 billion during the quarter. Pre-tax operating profit more than doubled to $1.3 billion from $586.0 million in the fourth quarter of 2011. The increase in revenues and profits was mainly attributable to improvements in North America, South America and Asia Pacific Africa operations.

For the full year, revenues dipped 1.2% to $126.6 billion. Pre-tax operating profit decreased by the same magnitude to $6.3 billion, as higher net pricing and the non-repetition of 2011 UAW ratification bonuses were offset by higher structural costs and unfavorable volumes.

In North America, revenues appreciated 12.7% to $22.1 billion in the quarter. Pre-tax operating profit more than doubled to $1.9 billion from $889 million a year ago due to favorable market and non-repetition of ratification bonuses.

In South America, revenues escalated 10.7% to $3.1 billion. Pre-tax operating profit rose 34.3% to $145 million driven by favorable market and new product launches, partially offset by higher costs and unfavorable exchange rates in Brazil.

In Europe, revenues shrank 21.7% to $6.5 billion. The region had a broader operating loss of $732 million compared with $190 million a year ago. The decline was attributable to unfavorable volume and mix.

In Asia-Pacific & Africa, revenues soared 47.4% to $2.8 billion. The region saw a $122.0 million improvement in pre-tax operating profit to $39.0 million in the quarter from a loss of $83 million a year ago. The betterment can be attributable to favorable market factors, offset partially by higher costs associated with new products and investments to support higher volumes and growth.

Ford’s Other Automotive – consisting primarily of interest and financing-related costs – saw a loss of $62 million versus $138 million in the year-ago quarter. The narrower loss was attributable to favorable fair market value adjustment on the company’s investment in Mazda.

Financial Services

The Financial Services segment recorded revenues of $2.0 billion, which was flat compared with the year-ago level. Ford Credit reported a pre-tax operating profit of $414 million, down 18.2% from $506 million. The decrease in profits was attributable to lower credit loss reserve reductions and fall in financing margin. Pre-tax operating profit from Other Financial Services plunged 58.3% to $5.0 million.

For the full year, Financial Services segment reported a 4.9% fall in revenues to $7.7 billion. Ford Credit saw a 29.4% fall in pre-tax operating profit to $1.7 billion in the year.

Financial Position

Ford had cash and marketable securities of $24.4 billion as of December 31, 2012, an improvement from $22.9 billion as of December 31, 2011. Total Automotive debt increased to $14.3 billion as of December 31, 2012 from $13.1 billion as of December 31, 2011.

In 2012, the company’s cash flow from continuing operations declined to $6.3 billion from $9.4 billion a year ago. Meanwhile, capital expenditures increased to $5.5 billion in the year from $4.3 billion in 2011.

2013 Outlook

For full year 2013, Ford expects industry volume (including medium and heavy trucks) of 15.0 million units–16.0 million units in the U.S. compared with 14.8 million units in 2012; 13.0 million units–14.0 million units in the 19 European markets covered by the automaker compared with 14.0 million units in 2012; and 19.5 million–21.5 million units in China compared with 19.0 million units in 2012.

The company expects its 2013 market share in the U.S. to be higher than 2012, Europe to be almost the same as in 2012, and China to be higher than 2012. Its market share in 2012 was 15.2% in the U.S., 7.9% in Europe and 3.2% in China.

During the year, Ford anticipates total company pre-tax operating profit to be the same as in 2012. Ford Credit is expected to report flat pre-tax operating profit compared with 2012.

Other Stocks That Expect to Beat

We also see likely earnings beats coming from the following industry peers of Ford:

General Motors Company (GM - Analyst Report): Earnings ESP of +6.00% and Zacks Rank #3 (Hold).

Navistar International Corporation (NAV - Analyst Report): Earnings ESP of +6.02% and Zacks Rank #3 (Hold).

Meritor Inc. (MTOR - Analyst Report): Earnings ESP of +25.00% and Zacks Rank #3 (Hold).