In spite of strong sales performance Ford Motor Company (NYSE:F) stock is losing momentum going into the earnings.
Detroit based Ford Motor Company (NYSE:F) is scheduled to announce its Q4 2016 and FY 2016 earnings on Friday, 26th of January. While the Blue Oval, driven by the strong overall performance of the US auto sector, reported another year of strong vehicle sales, Ford stock widely underperformed the market. The lackluster outlook for 2017 and the uncertainties surrounding the policies of the new administration have created a bearish sentiment around the stock.
The Detroit-based automaker was recently at the receiving end of a tweet from President Trump, criticizing it for investing in Mexico and threatening to impose a 45% border tax on its cars imported from Mexico. The company later scrapped its plan and decided to invest $700 million in its Michigan plant.
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The protectionist rhetoric of the new administration has created uncertainty for the company as the company has been forced to reconsider its investment plans outside the US and other countries such as China have promised to retaliate against any protectionist measures of the Trump administration. And while most of the analysts are not considering a trade war as their base case scenario, Ford is expected to be one of the biggest casualty of any such event. Ford has a significant presence in China, the world’s largest auto market and is a key player in the global supply chain.
Ford’s CEO along with the executives of other auto manufacturers will be meeting the President (1) today for breakfast, where trade, job creation and tax reforms are likely to dominate the agenda. Trump has promised to remove restrictions and overhaul the tax code to incentivise businesses to invest in the US and improve consumer and business sentiment.
Ford Had Another Year Of Strong Sales
Ford Motor Company (NYSE:F) saw strong sales during the fourth quarter. While the overall sales declined by 12% in the month of October, it picked up in the last two months, surprising most of the analysts. Sales in November and December were far higher than analysts estimates. Sales in November grew by 5% against analysts estimate of 0.5% growth while December sales growth came in at 0.3% against analyst estimate of a decline of 2%. F-Series was the key driver for Ford in December, reporting its best ever sales in last eleven years. Sales in Q4 were also helped by steep discounts during the holiday season, which is likely to impact its earnings.
For the year, total vehicle sales in the US came in at 2,614,697 vehicles, slightly higher than what it had sold last year. Growth in sales was largely driven by the SUV and Trucks segment. SUV sales grew by 4.6% while trucks sales grew by 6.5% YoY. On the other hand, car sales declined by 13.6 in 2016. Overall, sales of Ford brand vehicles saw a decline of 0.4% while sales of Lincoln brand grew by 10.4% during the year.
The company also reported strong sales performance in China, the world’s largest auto market. December sales grew by 23% capping a record year for the company. For the full year, Ford’s sales grew by 14% over 2015. SUV’s, premium sedans and Lincoln vehicles were the key growth drivers for the company in the mainland. To quote Peter Fleet (2), Ford’s sales chief for the Asia-Pacific region:
“We have built some great sales momentum in China, particularly in the second half of 2016, on the strength of our expanded vehicle lineup,”,”Record numbers of customers are choosing our 3-row Edge crossover, elegant Taurus sedan, Explorer premium SUV and Lincoln luxury vehicles.”
What To Expect From Q4 Earnings
But in spite of strong sales numbers, the expectations from its Q4 earnings is not high. Analysts expect Ford to report an EPS of $0.32 on a revenue of $35.1 billion. The EPS estimate represents a decline of more than 44% YoY, while revenue estimates represent a decline of 7.8% YoY. For FY 2016 analysts expect an EPS of $1.79 on a revenue of 142.86B. The company recently reaffirmed that it is on track to report an adjusted pre-tax profit of $10.3 billion.
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Why Ford Stock Is Underperforming
Ford Motor Company (NYSE:F) stock has underperformed the market by a wide margin in the last one year. Ford stock has gained around 2.75% while S&P 500 (INDX:SPAL) has gained more than 20% in the same period. The main concerns of investors are rising oil prices, lackluster FY 2017 guidance and rising interest rates. Analysts expect Ford’s earnings and revenue to decline in 2017. Also, as can be seen from the analysis of Ford’s sales above, the growth was largely driven by gas-guzzling SUV’s and trucks segment. The strong sales in these two segments have been fueled by low oil prices. But the recent pick-up in oil prices might dampen the demand for fuel inefficient vehicles such as SUV’s and pick up trucks.
Another worry for Ford investors is the rising number of used vehicles. As per a Bloomberg report (3), Americans will return 3.36 million leased cars and trucks this year, up 9% from last year. Last year, the number of returned car had jumped by 36%. The glut of returned leased cars is suppressing their resale value which will impact Ford’s financial services arm which leases its vehicles. Ford recently announced $300 million reduction in its 2017 profit forecast. Also, the lower resale value of the used cars will impact the sales of new cars as many customers may be attracted by the cheap prices of the used cars.
Ford Stock Is Losing Momentum Going Into Q4 Earnings
Ford stock is losing momentum going into Q4 earnings. F stock is in consistent decline and has lost more than 6% since January 4th. The stock is currently testing its 50-day moving average, and MACD is turning bearish, indicating that the stock may breach the support at the 50-day SMA and head lower in case of any negative news from the earnings. The stock is also seen forming a double top, which is a bearish pattern. The recent stock price movement and bearish MACD indicates that market is not expecting anything game changing from the Q4 earnings. Investors should watch out for the company’s FY 2017 guidance. Wait for earnings before buying Ford stock.
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Additional Links:
(2) http://www.fool.com/investing/2017/01/06/ford-china-sales-december-2016.aspx?ref=il
