Ford Motors Co. recently announced a net income of $7.4 billion for the year 2015, a spectacular rise from the previous year’s $3.2 billion figure. The company announced that the last quarter alone contributed $1.9 billion in net income, reflecting the generally positive performance for the entire U.S. auto industry which considers 2015 to be a record year.
Riding on the surging demand for its SUVs and pickups, Ford earned a record breaking fourth quarter sales of $2.0 billion in the North America market. In the largest profit-sharing on record, UAW members could expect an average of $9,300 in bonuses. Ford’s pre-tax profit of $10.8 billion is also a record.
The global auto player’s European business returned to being profitable, a first since 2011. Confident that this favorable performance would continue, Ford announced its expectation to match, and even beat, last year’s performance.
A Promise Fulfilled
According to Ford CEO Mark Fields, the strong performance is just a delivery on the company’s promise last year to have a breakthrough in 2015. This year, he promised to build on the existing strength while at the same time repositioning Ford into becoming a business on both auto and mobility, a move seen to create additional value for shareholders.
Indeed, revenue increased $149.6 billion or 3.8% while operating margins grew to 6.8% which, at 2.2 percentage points, is the company’s highest increase since 2001. The current margin is also the Ford’s highest since the 1990s.
In a press conference, the Ford CFO highlighted these improvements as well, saying that year-over-year, Ford was able to improve every financial metric.
Even after the deduction for pension-related accounting, its fourth-quarter $1.9 billion profit is a complete reversal from last year’s $2.5 billion loss. Quarterly operating profit is actually $2.3 billion, which translates to 58 cents per share, exceeding the 51 cents Wall Street estimate.
Total revenue for this quarter rose to $40.3 billion, a 12% increase from the previous year. Cash flow for 2015 increased more than two-fold to $7.3 billion and is projected to be strong this year but probably lesser than 2015. Surprisingly, Wall Street did not seem to notice Ford’s improved performance with its shares falling 1.2% closing at $11.71.
North American full-year profit is $9.3 billion, with Ford promising its 53,000 hourly employees in the region an average of $9,300 profit-sharing bonus.
This is $500 more than the previous record and is a significant improvement from last year’s average of $6,900. Last fall, workers already received partially $1,500 as an advance, a move to sweeten a new labor contract.
With the exception of South America, Ford was profitable in its international operations. Asia-Pacific came second to North America in profits, posting $765 million, with more than 50% of that ($444 million to be exact) being earned on the fourth quarter alone and mainly driven by China.
Europe posted a $259 million profit which is an $857 million increase from last year’s loss. Mainly due to Brazil’s recession, South America suffered a loss of $832 million but is still considered an improvement compared to 2014’s loss of $1.2 billion.
The combined Middle East and Africa market generated $31 million, an improvement from the $20 million loss a year ago. Its financial services subsidiary Ford Motor Credit increased its profit by 13% and contributed $2.3 billion. Ford CFO Shanks noted that while North America still leads in generating profits for the group, international operations have steadily gained importance.
North America Concerns
North America posted a record quarter in 2015 even with the $600 million cost of UAW contract factored in. However, Shanks expects the North American profit margin of 10.2% in 2015 to decrease slightly to 9.5% this year, noting the costs of the redesigned Super Duty pickups and other new products.
After breaking industry records for 2015, Shanks projects sale in the U.S. to remain at current levels until 2018. Shanks cites the low price of oil, favorable interest rates and the housing industry’s expansion as contributory factors that will support sale for full-size pickups.
Cash flow generated during this period will be used to further invest in the industry, making Ford better prepared should economic contraction happen. Shanks points out that Ford has a very strong business structure and is confident that the company can weather any downturn in the economy.
Ford will continue to pay dividend and remain profitable as well as be able to fund new investments even in a recession. When the economy eventually recovers, the company will stand to benefit from its long range planning.
The first half of 2015 had been a missed sales and revenue opportunity for the company’s aluminum-bodied F-150 pickup due to inadequate supply. Thankfully, the F-series is the company’s top-selling model and, with sales picking up on the second half, the series still managed to post a 3.5% increase by yearend.
Total US sales rose 5.3% in 2015 while market share dropping slightly from 15% in 2014 to 14.9% last year. Ford benefited much from its decision to redesign the Edge and MKX as well as freshening up the Explorer. Total SUV and crossover sales rose 7.8 percent in 2015 with the explorer posting its highest sales since 2004.