Profits in the Future are Closer Than They Appear
Rishabh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Ford (NYSE: F) reported its fourth quarter results that lived up to the company's tagline; indeed, it only gets brighter as you 'Go Further!'
The rear view
Ford recently reported positive results for January 2013 with revenue growth of 1.9% from last year to $36.5 billion in the quarter. It exceeded analysts' expectations of $33.17 billion.
The company posted a pre-tax profit of $1.7 billion, or $0.31 a share, well ahead of the Wall Street estimate of $0.26 per share. The company is still undervalued with a forward PE ratio of 7.75, a PEG ratio of 1.07, a price to sales ratio of 0.37, and a price to book ratio of 2.62.
Total revenue increased 5% in the quarter to $36.5 billion. Earnings per share of $0.31 were 52% higher than in Q4 2011 and exceeded estimates by 24%.
The overall sales showed a positive growth of 8%.
Ford on the fulcrum
The company faced financial crisis in 2008 and was able to navigate through the situation without being bailed out by the U.S. Government. Then last year Europe was the sore spot for Q4 as revenue declined 22%. Ford has closed down three factories in Europe to lower costs.
Ford still looks priced for an economic slowdown. However, signs are pointing towards continued vehicle sales growth rather than a decline. The driver that has moved the company from the lower end of the financial see-saw to its fulcrum is its North American segment. It is also financing growth prospects in Asia with a hike in sales of high-margin pickup trucks to boost up the figures. Ford has a great hold in the US and is presently looking forward to gaining a tighter grip in Asia. It sees China as a strong potential market that can take the company from the fulcrum to the higher end of the see-saw.
Under the hood
Consumers bought a new Ford Fiesta every two minutes on average last year, making it the best-selling small car in Europe, according to automotive data intelligence provider JATO Dynamics. 560,000 Fiestas were sold worldwide in 2012 alone. The Fiesta has now been the top-selling small car in Europe for 3 out of the past 4 years.
Ford is currently launching the new Fiesta in Europe, which is coming to dealerships now. It has been redesigned inside and out, and offers the 1 litre Eco Boost petrol engine, the 2012 “International Engine of the Year.”
With enhanced, state of the art features and the car's improved technical aspects, its past record sales can simply serve to be the cherry on the cake. Sales are bound to rise, helping the company in pushing the profit figures up, which in turn can help its investors see better returns from their investments.
Opponents in the race
Toyota (NYSE: TM) is off to a good start. Its auto sales for January have been very impressive in the US. It has recaptured its position as the world’s top automaker by dethroning archrival General Motors (NYSE: GM) as it recorded a sale of 9.75 million vehicles globally in 2012, which exceeded GM’s sales of 9.29 million vehicles. Toyota’s revenue increased 9.3% to $65.56 billion, whereas GM booked revenue of $39.30 billion. GM also missed estimates on earnings per share of $0.51 at $0.48, whereas Toyota posted a 22.2% rise in earnings per share to $0.39 in the third quarter of fiscal 2013 ended on Dec. 31, 2012 from the same quarter of the prior fiscal year.
The secret of Toyota’s comeback has been its policy to work on the quality of the product rather than running behind numbers. Also, since late 2010 the North American region has generated nearly all of GM’s profits. However, GM's North American market share has slipped during that time. It has raised doubts about the sustainability of this business. Compared to the previous year, adjusted earnings before interest and taxes in North America for Q4 of GM was slightly down. Also, North American market share dropped from 17.5% to 16.6%. GM has plans of introducing about 20 new models over the next two years, which can help it to bounce back. The company is also planning to redesign some cars, in order to ascend the competitive ladder. Some of the redesigns include the Chevy Impala, GMC Sierra, and a new Chevy Corvette. Its brand name is something that has helped it in marking a strong position in the automobile industry, and the company still has the power to rule the road.
The pit stop
Ford expects 2013 to be another strong year, with the company's total operating profit in line with that of 2012. Ford is currently paying a dividend of 3.1% and the current picture is brighter compared to that of previous years. Hence the company is likely to continue to reward shareholders with a dividend.
Ford is expected to grow earnings annually at a rate of 8.64%. This is approximately in line with the growth expectations of the overall market. However, with Ford's 3.1% dividend, investors should reasonably achieve a compound annual growth rate of nearly 12% if dividends are reinvested.
The company's turnaround strategies have helped it reach where it is today, and leave me bullish on the stock. I'm looking forward to great returns in a year or two.
All in all, Ford has returned from a bumpy ride to a smoother drive and is ready to hit the freeway in no time.
rishabhjain89 has no position in any stocks mentioned. The Motley Fool recommends Ford and General Motors. 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!