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Customer LoginsFord earns USD3.8 bil. in Q1, reports record operating margin and net income
Passenger car registrations in the European Union have risen more slowly during March, albeit still up by 6.0% year on year (y/y) and helping to make further headway during the first quarter of 2016.
IHS Automotive Perspective
- Significance: Ford plans to launch 12 new products in 2016 and the group's first-quarter results benefit from fundamental progress made in 2015. Operating margin reached 9.8% globally in the first quarter and a quarterly record of 12.9% was achieved in North America. Wholesale volume increased 9.7% in the quarter. Global market share reached 7.1%, up 0.2 percentage points year on year.
- Implications: Ford Group has provided a 27th consecutive profitable quarter and a fourth consecutive profitable quarter in Europe, while the North American results were extremely strong. Although South America continues to be a difficult market for all automakers, Ford had a more difficult quarter than GM or FCA and saw revenue decline 44%.
- Outlook: Ford says all metrics in 2016 will improve on strong 2015 results, with a strong first quarter backing up the expectation. First-quarter records were supported by strong sales mix and lower costs globally. Regionally, North America provided a strong quarter on full availability of the F-150 and strong SUV sales, while Europe reported a profit. The South American market was problematic, with every metric falling. Ford's guidance for 2016 is unchanged.
Ford Group has delivered strong first-quarter results, reporting the 27th consecutive profitable quarter, including record quarterly pre-tax profit (USD3.8 billion), net income (USD2.5 billion), and automotive operating margin (9.8%). Driving the improvements were a 9.7% increase in global wholesale deliveries to 1.7 million units and revenue of USD35.2 billion. The automotive operating-related cash flow increased to USD2.7 billion in the first quarter and gross cash increased to USD24.3 billion, from USD23.6 billion in first-quarter 2015.
In 2016, Ford is planning to launch 12 new products, compared with 20 in 2015. This will likely mean somewhat reduced expenses, while the company continues to benefit from generally stronger volume and mix on products launched in 2015. Among the notable product and business actions in the first quarter of 2016 were the announcement of four new sport utility vehicles (SUVs) and the introduction of the facelifted Fusion and all-new Lincoln Continental. Ford has been fairly aggressive in it efforts toward becoming a mobility company; after beginning a series on pilot projects and experiments to examine worldwide use cases and customer needs, Ford in the first quarter of 2016 created Ford Smart Mobility LLC. Ford is not alone in this, however, as General Motors (GM) has also created a company with a similar vision, Maven, and Volkswagen has announced it will be starting a similar company by mid-2016.
Ford has achieved increased market share and profitability in Europe in the first-quarter results. The automaker's South American pre-tax result declined on low volume in Brazil and currency devaluation in Argentina − though the region is difficult for all, Ford's first-quarter results in South America are weaker than those of GM or Fiat Chrysler Automobiles (FCA). In North America, Ford delivered record first-quarter results with an impressive operating margin of 12.9%. The performance in the Middle East and Africa declined in the first quarter of 2016, being down on all metrics; Ford said the results were impacted by low oil prices and political strife in the region. The South American market continues to fall, with the only thing that is clear being the bottom has not yet been reached. While Ford was able to staunch some South American losses in some quarters of 2015, it has started 2016 notably down. Ford saw solid gains in operating margins, deliveries, and revenues in Asia-Pacific, with profits stronger on higher volume and favourable mix.
Outlook and implications
In 2016, Ford says all metrics will improve over strong 2015 results, and a strong first quarter has backed up the expectation. First-quarter 2016 records were supported by strong sales mix and lower costs globally. Regionally, North America provided a strong quarter on full availability of the F-150 and strong SUV sales and Europe turned a profit. The difficult South American market was problematic, with every metric falling. Ford's guidance for 2016 is unchanged. This includes a forecast for a North American operating margin of 9.5% or higher for the year, on similar revenues as last year, a smaller loss in South America, higher profits in Europe, results from Middle East/Africa that are about even with 2015, and a stronger year in Asia-Pacific.
North America
In the first quarter of 2016, Ford's North American division delivered an operating margin of 12.9%, compared with 7.8% in the first quarter of 2015. This metric improved over the first two quarters of 2015, though it slipped back to 8.2% in the fourth quarter of 2015. Pre-tax income jumped 96%, a quarterly record for the region. Market share in North America reached 14.6% in the first quarter, compared with 14.0% in the same quarter of 2015. North American revenue gained 19% to USD23.9 billion, 68% of the company's total first-quarter revenue. North America also accounted for 47% of global deliveries. Ford's North American performance typically comes from full-size pick-up truck sales and small and mid-size fuel-efficient cars. Despite an increase in typically lower-margin fleet sales in the first quarter of 2016, Ford noted that transaction prices, on average, in the US increased the average transaction price by USD1,500. IHS Automotive forecasts Ford will see North American sales increase to 3.0 million units in 2016, staying near that mark through the decade.
South America
South America's economic difficulties have accelerated in early 2016, and Ford does not see signs of any market improvement in the region. The results in first-quarter 2016 saw Ford experience a strong decline in wholesale deliveries, revenue and operating margin, as well as a drop in market share. Factors pulling the region down are largely laid at the door of the difficulty in Brazil as government fiscal policy becomes less stable. In addition, with the country's president facing impeachment, the political environment remains unsteady. Brazilian sales dropped 29% in the first quarter, according to Ford, though its deliveries tumbled appreciably more. Ford's wholesale deliveries dropped 37.6% and revenue dropped 46.7%. Ford had advised that South American losses would increase in 2016, and IHS Automotive forecasts Ford's South American sales will fall to about 314,600 units in 2016, as the market is proving increasingly difficult.
Europe
Ford's plan is on track and the European region delivered a profitable 2015, despite difficulties in Russia. The region continued its profitability in the first quarter of 2016, seeing pre-tax results jump to USD434 million. Wholesale deliveries and revenues grew as well. Ford's European wholesale deliveries volume increased to 399,000 units in the first quarter; according to the automaker's data, and market share in the first quarter reached 8.0%, up from 7.7% in the first quarter of 2015. IHS Automotive forecasts overall improving volumes in Europe, including for Ford; in 2016, we forecast sales of 1.47 million vehicles in the region for the company.
Asia-Pacific
Ford saw a strong first quarter in the Asia-Pacific region, with pre-tax profit growing to USD220 million, a 109.5% year-on-year (y/y) gain. Ford said that its Chinese JVs contributed USD443 million to the pre-tax profit in the first quarter, compared with USD83 million in the same period last year. After launching new products in the third quarter of 2015, higher volume and favourable mix lifted profits in the first quarter of 2016. Wholesale deliveries improved by 8.7%, but reported revenues were even healthier, showing an 18% increase, leading to an operating margin improvement to 8.2% in the first quarter. For the year, Ford expects its Asia-Pacific results will be higher than in 2015.
Middle East and Africa
Ford reported a difficult first quarter in the Middle East and Africa (MEA), noting that external factors pulled down the results, including low oil prices and political strife. Reversing a small pre-tax profit in the fourth quarter of 2015, Ford saw a pre-tax loss of USD14 million in MEA in first-quarter 2016, though for the full year the company says that it expects pre-tax results higher than or equal to 2015's results. Wholesale deliveries declined 2.1% and revenues by 18.2%, though market share held steady at 4.3%. The MEA region saw operating margin fall in the first quarter compared with the same period the year before.
About this article
The above article is from IHS Automotive Same-Day Analysis of automotive news, events and trends, and is a deliverable of the World Markets Automotive Service. The service averages thirty stories per day and also provides competitor and country intelligence. Get a free trial.