How Ford Will Boost Its Profits in 2015
Ford Motor Co. (F) said last month that it earned a pre-tax profit of $6.3 billionin 2014. That was down more than 26 percent from its 2013 result, as overseas troubles and short supplies of F-150 pickups hurt the Blue Oval’s bottom line.
Ford CEO Mark Fields said that he expects the company to bounce back strongly in 2015. He’s forecasting a pre-tax profit of between $8.5 billion and $9.5 billion this year. That would be a big jump from 2014, but Ford’s guidance is usually spot-on. How will the company get there?
In North America, Ford’s Pickups Should Drive Good Gains
Think of it this way: Ford has spent the last few years making a lot of investments — in new products, in restructuring in Europe, in new factories and facilities in Asia. As Fields and his team see it, 2015 is the year when some of those investments will start to pay off.
In North America, 2014 results were helped by a strong environment for auto sales in the U.S. — but hurt by short supplies of hot-selling pickup trucks. Ford’s new aluminum-bodied F-150 requires different tooling and techniques to manufacture. Setting up Ford’s two truck factories to build the new truck required a lot of downtime, and that meant that Ford couldn’t make as many trucks as its dealers wanted.
The upshot: Sales of pickups, the company’s most profitable product, were down in 2014, while rivals posted gains. That will change in 2015, as Ford’s two truck factories get up to speed with the new F-150 — or put another way, as Ford’s big investments in its new truck start to pay off. (One of those factories is already working at full speed; the other will join it in the spring.)
Ford’s North America unit earned $6.9 billion last year; it’ll do better in 2015, Fields promises.
Tough Situations in Europe and South America Should Improve
Meanwhile, Ford lost just over $1 billion in Europe last year, and almost $1.2 billion in South America. Europe’s problems are chronic: Steep, lingering recessions in many European nations have clobbered new-car sales. Ford has extensively restructured its European operation and added several new models to its regional portfolio.
The company had expected those changes to produce a profit in Europe in 2015. Fields now says that won’t happen — Russia’s troubles have thrown a wrench into those plans — but losses will be lower than they were last year, and the unit could break even in 2016.
South America’s problems, on the other hand, were mostly acute: Government currency controls in Venezuela made it nearly impossible for Ford to do business there; changing the way it accounts for its operations in the country meant a charge of some $800 million. Ford (and rivals) are also contending with economic slowdowns and rising inflation in key markets like Brazil and Argentina.
Ford might still post a loss in South America in 2015, but it promises that its results will be “substantially improved.”
Big Investments in Asian Growth Will Start to Pay Off This Year
In Asia, the story is a happier one. Ford’s Asia-Pacific unit, which includes its fast-growing operations in China and India, made $589 million last year — despite huge ongoing investments in new factories and facilities.
The good news is that some of those factories got up and running in 2014 — and the rest will be running later this year. Ford has a tremendous opportunity in China, where its products seem to have hit a “sweet spot” with Chinese consumers. Making enough cars and trucks to keep up with demand has been a challenge, but those new factories should help — and the extra cars and trucks should find ready customers.
The upshot: Ford promises an even better result in its Asia-Pacific region in 2015.
Improvements All Around Should Add Up to a Nice Jump in Profits
All of these improvements, Fields says, will add up to a pre-tax profit between $8.5 billion and $9.5 billion, an improvement of at least $2.2 billion over 2014’s result.
Of course, surprises could knock those expectations off course. It happened last year: Ford’s guidance at the beginning of 2014 was replaced by more subdued expectations after the extent of troubles in Russia and South America became clear. But absent any surprises, Ford seems set for a bounce-back year in 2015.
[source : dailyfinance.com]