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Ford’s Revenues Surprise, But Multiple Headwinds Drag Earnings Down

Ford Posts Mixed First-Quarter Results

Ford Motor Company (F) announced results for the first quarter of its fiscal year 2014 (1QFY14; March 31, 2014), before the opening bell today. Consolidated revenues for the quarter rose 6% to $35.9 billion, up from the $33.9 billion recorded in the comparable quarter last year, beating analysts’ estimates of $35.5 billion. Strong sales volumes, particularly in the Asia-Pacific region, resulted in improved sales revenues.

Net income for the quarter was $989 million, a 39% decline from the $1.64 billion posted in the same quarter last year. Adjusted diluted earnings per share (EPS) were $0.25, missing analysts' estimates of $0.31. The adverse effect on the company's earnings was largely a result of harsh weather, additional warranty costs, recall expenses, and detrimental foreign currency fluctuations amid the devaluation of the Venezuelan currency.

First-quarter revenues for the automotive sector were unchanged at $33.9 billion, while the financial services sector’s revenues increased to $2 billion, compared to the $1.7 billion recorded in 1QFY13. Total automotive wholesale volume jumped 6% on the back of strong sales in all regions, with the exception of South America. Total unit production for the quarter equaled 1.6 million units, 46,000 units more than last year.

At the end of the first quarter, Ford collected $1.2 billion in automotive operating-related cash flow. Currently, automotive gross cash of $25.2 billion exceeds the company's total debt by $9.5 billion, while the company's liquidity position stands at a strong $36.6 billion. The company also said it paid $500 million in dividends during the quarter.

Segment Results

Ford’s North America segment’s revenues dropped from $21.5 billion in 1QFY13 to $20.4 billion for 1QFY14. Pre-tax profit totaled $1.5 billion, an $892 million decline from last year's record profits. Wholesale volumes were down 2%, while its market share dropped 60 basis points to 15.3%. Higher costs, stemming from warranty reserve increases for field service actions and adverse weather restricted the segment’s performance in the quarter.

The South America segment also reported a decline in revenues from $2.3 billion to $1.9 billion. Pre-tax loss increased to $510 million from the $218 million posted last year. Wholesale volumes fell 8% YoY. Overall, lower industry volumes, import restrictions in Argentina and Venezuela, and plants running at less than full capacity amid limited availability of the US dollar hurt the segment's performance.

In the company’s Europe segment, revenues increased 20% to $7.8 billion, and pre-tax losses shrunk by $231 million to $194 million over the last year. An 11% jump in wholesale volumes, lower costs, and a favorable foreign currency impact helped push forward the segment's performance.

The Middle East and Africa segment reported revenues of $1.2 billion, $100 million lower than last year, while pre-tax profits improved by $7 billion YoY to $54 million. Declining wholesale volumes over the last year, amid reduced dealer inventories and a weaker South African rand, weighed heavily on the segment's performance.

Asia-Pacific posted record pre-tax profits of $291 million, up from a pre-tax loss of $28 million in the same quarter last year. Revenues were up $400 million to reach $2.6 billion. Overall wholesale volumes jumped 32% in the region, and escalated 45% in China. High sales volumes, a greater market share, and royalties from joint ventures were partially offset by more investments and higher costs in the region. Ford's market share in China rose 70 basis points to 3.4%.

Guidance

For the full year, the company expects revenues to be in line with FY13 levels and pre-tax profits of $7-8 billion. Automotive revenues are expected to be in line with levels recorded last year, while the company said its operating margins may be lower. Automotive operating-related cash flow is expected to be positive, but considerably lower than FY13. Analysts expect full-year revenues to be $141 billion and full-year EPS to come in at $1.33.

For the second quarter, vehicle production volumes are expected to hit 1.7 million units, up 32,000 units from last year. Analysts expect second-quarter revenues to be $36.2 billion with EPS of $0.38.

Ford’s share price is currently down about 3% as of 9:30 AM EDT.

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