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Will Ford (F) Disappoint Investors This Earnings Season?

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Ford Motor Co. (F - Free Report) is set to release third-quarter 2016 results on Oct 27. Last quarter, the company posted a negative earnings surprise of 13.33%. Further, the automaker managed to beat earnings in two of the trailing four quarters and missed in one, thus delivering a positive average surprise of 15.8% over this period. Let’s see how things have shaped up for the forthcoming announcement.

Factors Influencing This Quarter

Ford is witnessing strong sales growth in Europe and China as well as modest improvement in the U.S. This should significantly augment revenues. Ford’s impressive product launches are helping boost sales volume.  

However, the company will record a $640 million recall-related expense in the quarter, which will weigh on the bottom line. The expected expense will be borne by Ford’s North America business segment, which is likely to post weak earnings as a result. Further, the automaker has been incurring losses in South America since 2013. This trend is expected to continue in the to-be-reported quarter.

Moreover, the launch of the new Super Duty truck will result in lower contribution margins for Ford in the third quarter of 2016. The company also expects high product-related investment, headwinds from commodities net of exchange, and the effects of Brexit to adversely affect the quarter’s results. In addition, Ford has been replacing its older models and rolling out new ones. This involves substantial expenditure, leading to high structural costs. Higher costs will adversely affect the company’s profits.

Earnings Whispers

Our proven model does not conclusively show that Ford is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP: The Earnings ESP represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate. Ford’s Earnings ESP is 0.00% because the Most Accurate estimate and the Zacks Consensus Estimate are both pegged at 21 cents.

FORD MOTOR CO Price and EPS Surprise

FORD MOTOR CO Price and EPS Surprise | FORD MOTOR CO Quote

Zacks Rank: Ford carries a Zacks Rank #5 (Strong Sell). We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

The Goodyear Tire & Rubber Company (GT - Free Report) , which is expected to report third-quarter 2016 results on Oct 28, has an Earnings ESP of +1.75% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Fox Factory Holding Corp (FOXF - Free Report) has an Earnings ESP of +2.56% and a Zacks Rank #1. The company will report third-quarter 2016 financial numbers on Nov 2.

Magna International Inc. (MGA - Free Report) has an Earnings ESP of +1.67% and a Zacks Rank #2. The company is expected to release third-quarter 2016 results on Nov 3.

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