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Ford Motor Co. (F - Analyst Report) posted an increase of 4.1% in earnings to $1.6 billion and 5.1% in earnings per share to 41 cents in the first quarter of 2013, beating the Zacks Consensus Estimate by 3 cents. Revenues improved 10.5% to $35.8 billion, exceeding the Zacks Consensus Estimate of $32.8 billion.

The improvement in revenues and earnings was mainly attributable to Ford’s strong performance in North America and Asia Pacific Africa. The company’s results were disappointing in South America due to unfavorable exchange rate as well as in Europe due to the sluggish economy.

Ford Automotive        
             
Revenues in the segment grew 11.1% to $33.9 billion on a 10.2% rise in wholesale volumes to 1.5 million units. The increase was attributable to market share gains in both North America and Asia Pacific Africa. However, pre-tax profit fell 10.6% to $1.6 billion (5.2% of sales) from $1.8 billion (6.4%) due to poor performance in Europe and South America.

In North America, revenues increased 19.9% to $22.3 billion as wholesale volumes went up 16.9% to 761 thousand. Pre-tax operating profit rose 14.5% to the record level of $2.4 billion (11.0% of sales) since 2000 when the company began reflecting the region as a separate business unit. The improvement was attributable to favorable market factors, offset partially by higher costs associated with the company’s investment in new products and growth, as well as higher pension and OPEB expense.

In South America, revenues dipped 4.2% to $2.3 billion as wholesale volumes fell 4.2% to 113 thousand. The operating region saw a pre-tax loss of $218 million in sharp contrast to a profit of $54 million in the first quarter of 2012. The decrease reflected unfavorable exchange rate, most related to Venezuela, including the impact of the devaluation of the Bolivar as well as currency weakening in Argentina.

In Europe, revenues shrank 6.9% to $6.7 billion on an 8.3% fall in wholesale volumes to 341 thousand. The region had a broader operating loss of $462 million compared with $149 million in the prior year. The drastic fall was attributable to higher structural costs and higher pension expenses due to lower discount rates as well as unfavorable market factors and exchange rates.

In Asia-Pacific & Africa, revenues escalated 13.0% to $2.6 billion on an impressive 30.0% rise in wholesale volumes to 282 thousand. The operating region reported a pre-tax operating profit of $6.0 million (0.2% of sales) compared with a loss of $95.0 million (4.2%) in the year-earlier quarter. The improvement was mainly attributable to favorable market factors, increased royalties and subsidiary profits, partly offset by the impact of the company’s investments for future growth in the region.

Ford’s Other Automotive – consisting primarily of interest and financing-related costs – saw a broader pre-tax loss of $125 million compared with $106 million in the year-ago quarter. The higher loss reflected net interest expense, offset partially by a favorable fair market value adjustment on the company’s equity investment in Japan’s Mazda Motor.

Financial Services

Ford’s Financial Services segment generated revenues of $1.9 billion, which was flat compared with the year-ago level. The segment reported a 10.3% rise in pre-tax operating profits to $503 million from $456 million in the previous year-quarter. Ford Credit registered a 12.2% rise in pre-tax operating profits to $507 million from $452 million a year ago due to higher receivables and favorable residual performance, offset partially by lower credit loss reserve reductions.

Financial Position

Ford had cash and marketable securities of $24.2 billion as of Mar 31, 2013, up from $23.1 billion as of Mar 31, 2012. Automotive gross cash rose to $24.2 billion as of Mar 31, 2013 from $23.0 billion as of Mar 31, 2012. Automotive debt increased to $16.0 billion as of Mar 31, 2013 from $13.7 billion as of Mar 31, 2012.

In the quarter, the company’s Automotive operating-related cash flow deteriorated to $700 million from $900 million in the first quarter of 2012. Meanwhile, capital expenditures enhanced to $1.5 billion from $1.1 billion in the prior-year quarter.

Guidance Reiterated

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 also expected to report flat pre-tax operating profit compared with 2012.

Our Take

We appreciate Ford’s product plans and debt reduction strategy. However, we are concerned about the economic weakness in Europe as well as higher structural costs.

As a result, the company currently retains a Zacks Rank #3 on its stock, which translates to a short-term (1 to 3 months) rating of Hold. The company’s cross-town rival General Motors Company (GM - Analyst Report) will release its first quarter results on May 2.

Some other stocks that are performing well in the industry where Ford operates include Visteon Corp. (VC - Snapshot Report) and Denso Corp. (DNZOY). They carry a Zacks Rank #1 (Strong Buy).
 

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