Ford: Full Speed Ahead
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Thanks to solid sales numbers, growing profitability and a doubling of its dividend payments, shares of Ford (NYSE: F) have been on a tear over the last months. But the good times are far from over for this stock, so fasten your seatbelt, relax and enjoy the ride, because Ford will keep moving forward.
Pickups are a crucial for Detroit automakers. Ford gets nearly 90% of its profits from this segment, while pickups and sport-utility vehicle derivatives generate around two-thirds of worldwide earnings for archrival GM (NYSE: GM). American automakers control 93 % of the U.S. pickup market, a valuable niche where Japanese competitors Honda (NYSE: HMC) and Toyota (NYSE: TM) have not been able to extend their competitive pressure.
The popular F-Series has been the the top-selling pickup line in the U.S. for 36 years, and America’s best-selling vehicle for 31 consecutive years. Pickup sales are even gaining momentum as the company sold 645,316 F-Series in 2012, a 10% increase versus 2011. December sales figures of 68,787 units were are also quite encouraging, and the company´s sales VP Ken Czubay said last week that pricing- a key factor for profitability – has been very strong too.
And there is still plenty of room for growth in pickup sales: clients have been postponing their purchases for a long time and the average truck on the road is now 10.4 years old, a record which bodes well in terms of renewals in the middle term. Pickup sales are also much correlated with housing and construction, which has reached a bottom in 2012 and should provide a big tailwind for the industry over the next years.
Ford has made a remarkably comeback, not only when it comes to the quality and efficiency of its vehicles, buy also on the financial front. Unlike its domestic rivals, the company managed to go through the financial crisis without government help, debt levels have been notoriously reduced, profit margins are on the rise and the company has made big contributions to its pension plan over the last years.
Ford has recently announced a doubling of its dividends which will bring the dividend yield to a juicy 3%. This attractive from a valuation point of view, especially in the automotive industry where GM pays no dividends, Toyota yields 1.4% and Honda 2.6%.
Such as important, this growing dividend also signals that management feels confident about the company´s cash flow generation over the following years.
The automotive industry is remarkably tough, and profit margins will probably come down in the middle term as Ford increases capacity in order to satisfy the growing demand for its products. But the company has made some amazing progress over the last years, and it’s now strong enough to withstand any difficulties that may arise on the horizon.
Ford has recently announced last week that it will be adding 2,200 salaried jobs this year, the biggest addition of white-collar workers at the automaker in more than a decade. This comes in addition to the more than 8,100 combined hourly and salaried U.S. jobs Ford added in 2012. This is not only good news for American workers, but also a positive driver for the stock as it’s another vow of confidence in the future by the company´s management.
Ford has lagged competitors like GM, Toyota and Volkswagen in China, but the company is determined to recover the lost time in the most promising car market in the world. Ford has already committed to investing $5 billion in China, planning to double its current production capacity in the country.
Although from a much smaller base, Ford is outgrowing GM and Volkswagen in China, vehicle sales in the country rose by a 21% in 2012 to 626,616 units, while sales for December where even more impressive with a 43% increase from a year earlier to 70,510 vehicles.
Japanese companies, on the other hand, have been suffering from declining sales in China due to political conflicts between the two countries which have produced a backlash and anti-Japanese sentiment among Chinese consumers. Toyota´s loss in China may be Ford´s gains to some degree.
Keep Your Eyes on the Road
Ford has made an impressive comeback, both when it comes to the quality of its products and its financial position. The company is investing heavily for growth, not only in its much profitable home market but also in China, where growth opportunities are truly exceptional. So keep your eyes on the road, because Ford is driving at full speed.
acardenal owns shares of Ford. The Motley Fool recommends Ford and General Motors Company. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!