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Customer LoginsSame-Day Analysis: Ford earns USD2.6-bil. in Q4, reports full-year record pre-tax profit
Ford saw pre-tax results of USD10.8 billion in 2015, helped by USD2.6 billion in the fourth quarter. Europe was profitable, and wholesale deliveries reached 6.63 million. CEO Mark Fields calls 2015 a breakthrough year, and the guidance is for 2016 to be equal to or higher than 2015.
IHS Automotive Perspective
- Significance: Ford completed 16 new launches in 2015, driving up revenue and profitability. The operating margin reached 6.1% globally and 10.2% in North America for the year and 6.8% and 8.2% for North America; both year over year (y/y) increases. Wholesale volume increased 12.3% for the quarter and 4.9% for the year, pushing the global market share to 7.3%, up 0.2 percentage point compared with the fourth quarter of 2014.
- Implications: Ford has provided a 26th consecutive profitable quarter, and Europe a third consecutive profitable quarter. While South America continues to be a difficult market, Ford reduced full-year losses. In North America the automaker saw another record profit in the quarter.
- Outlook: Ford had advised that the calendarisation of profits in 2015 would not be typical, including lower pre-tax profits in the first half. The company has delivered on this, as evidenced by a strong fourth quarter. As indicated by CFO Bob Shanks with third-quarter results reporting, fourth quarter results were weaker than the third quarter, on typical year-end costs.
Ford's global wholesale deliveries were up 12.3% and net income was up 128% during the fourth quarter of 2015 and 4.9% for the year. Ford delivered a 26th consecutive profitable quarter, with USD1.9 billion in pre-tax profit, up 12.1% year on year (y/y), on revenues of USD37.9 billion, up 12.1% y/y. The automotive operating-related cash flow increased to USD2.1 billion in the fourth quarter for record USD7.3 billion for the full year, and gross cash increased to USD23.6 billion from USD21.7 billion in fourth-quarter 2014.
In early 2015, Ford advised that the calendarisation of its global pre-tax profits in 2015 would not be typical, with profitability lower in the first two quarters of the year but then growing progressively. Fourth quarter results helped Ford deliver the breakthrough year that Fields promised earlier in the year, though the fourth quarter saw operating margin pull back compared with third quarter 2015. During the fourth quarter, Ford launched the all-new Taurus in China, the Lincoln MKZ and introduced an updated Escape for North America. Ford introduced 16 new products globally in 2015, compared with 24 in 2014.
Ford continues to execute its restructuring plan, with increased market share in the fourth quarter and third quarter of profitability in Europe. The automaker's South American pre-tax result was worse than that in the third quarter of 2014. In North America, Ford delivered record fourth-quarter results. The performance in the Middle East and Africa improved in the fourth quarter of 2015, with positive operating margin and improved wholesale deliveries. Ford continues to expect a pre-tax loss in Europe in 2015 but "substantially improved" from 2014. The South American market continues to fall, with the only thing clear that the bottom has not yet been reached. However, Ford reported positive signs in South America in the third quarter, containing losses. Asia Pacific saw stronger operating margins, deliveries and revenues.
Outlook and implications
Ford had advised its results in 2015 would show atypical calendarisation, including lower pre-tax profits in the first half, and the company has delivered on this forecast. Full-year pretax results were at the upper end of guidance, with higher automotive revenue, operating margin and operating-related cash flow compared with full-year 2014. For 2016, the Ford says all metrics will improve again. Chief financial officer Bob Shanks had said that the fourth quarter would be weaker than the third quarter, on typical year-end costs, as well as costs associated with the United Auto Workers union contracts in the United States, particularly expectations of a UAW signing bonus; this proved true, but the quarter was still strong enough to deliver on guidance.
North America
With less impact from launch activity, Ford's operating margin in North America showed a significant year-on-year gain, though the 8.2% operating margin of fourth quarter was less than 11.3% in third quarter or 11.1% in the second quarter of 2015. Pre-tax income jumped 25.6%. Market share in North America reached 14.1% in the third quarter, compared with 13.8% in the same quarter of 2014; US market share picked up to 18.3% and North American share grew to 22.0%. North American revenue gained 19.1% to USD24.9 billion, 66% of the company's total fourth-quarter revenue. North America also accounted for 46% 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. IHS Automotive forecasts Ford will see North American sales increase to 3.0 million units in 2016, staying around that mark through the decade. Ford improved North American operating margin to improve to 9.5% in 2015, with substantial top-line growth, higher pre-tax profits as high-profit-margin vehicles come to the market.
South America
South America economic difficulties are ongoing in 2015 and Ford does not see signs of market improvement in the region. Results in 2015 were largely as expected, with a decline in wholesale deliveries, revenue and operating margin, though losses grew in the fourth quarter and were down for the year. Ford's full-year 2015 results looked somewhat improved on not including Venezuela in its consolidated results. Factors pulling the region down include instability in Argentina and difficulty in Brazil as government fiscal policy becomes less stable. Ford's wholesale deliveries and revenue dropped, and Ford market share declined in the fourth quarter. Ford advises South American losses will increase in 2016; IHS Automotive forecasts Ford's South American sales will fall to about 353,000 units in 2016.
Europe
Ford's plan is on track and the region, and three consecutive profitable quarters and a profitable year, despite difficulties in Russia. Wholesale deliveries and revenues grew in the fourth quarter and year. Ford's European wholesale delivery volumes increased to 390,000 units in the fourth quarter; according to Ford's data, market share in the 20 European countries it tracks was 16.4%, up 1.3% y/y. IHS Automotive forecasts overall improving volumes in Europe, including for Ford; in 2016, we forecast sales of 1.45 million vehicles for the company.
Asia-Pacific
As with other regions, Ford expected pressure on the results in Asia-Pacific over the first half of 2015, with substantially improved second-half results. New product third-quarter launches included the Everest and the Figo, global One Ford products tailored for the region, with fourth quarter and full-year benefits. In the fourth quarter, Ford saw a year-on-year pre-tax jump more than 300%, leading to improved operating margin. Wholesale deliveries decreased and revenue was flat. Market share in the region (3.6%) and in China (4.3%) were roughly even year on year.
Middle East and Africa
Ford reported a small profit in pre-tax results on higher net pricing offset by lower volume in the Middle East and Africa − the first pre-tax profit since the region was split from Asia. Wholesale deliveries grew 22.7% and revenues by 10.0%; market share decreased from 4.7% to 4.5%, however. The Middle East and Africa region saw operating margin gain in the fourth quarter compared with a year earlier. Ford advises that 2016 will see pre-tax results equal to or higher than 2015.
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.