Ford said on Wednesday (18 December) it expects 2013 to be one of the best full-year results in its history, with strong revenue growth, market share in all regions improved or equal to last year, total company pre-tax profit of about US$8.5bn, substantially higher automotive operating-related cash flow than a year ago and a stronger balance sheet. Pretax profit for 2014 is seen down up to $1.5bn, however.
It expects 2014 to be “another solid year” and a critical next step in the One Ford plan as it launches the most vehicles – 23 – in a single year in more than a century and invests across the business for profitable growth.
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“We are celebrating what we expect to be an outstanding 2013, one that is likely to be among the best in our history,” said CFO Bob Shanks.
“Once the year is finished, we expect it will show that we grew the business, delivered strong financial results, progressed the restructuring of our operations in Europe and Australia, strengthened our balance sheet and provided attractive returns to our investors.”
Full-year automotive revenue is projected to grow about 10% with market share increases in all regions other than Europe, where Ford expects a higher retail share of the retail passenger car industry, as well as improved share of the commercial vehicle market. In Asia Pacific Africa and China, the company expects record market shares.
Ford said it was making good progress in implementing its Europe transformation plan and also announced earlier in the year a plan to restructure operations in Australia.
The company continued to strengthen its atomotive balance sheet. It estimates that it nearly cut in half the underfunded status of its global pension plans compared with the end of 2012. Ford also shared a comprehensive capital strategy with investors, one that is targeted to deliver high levels of shareholder value.
Early in the year, Ford doubled its dividend and also implemented an anti-dilutive share repurchase program to offset compensation-related issuances. Based on performance and an improving balance sheet, the company now is rated investment grade by four of the major rating agencies.
Ford now projects that total company full-year pre-tax profit, excluding special items, to be about $8.5bn, better than 2012 and in line with its most recent outlook. The company also is reconfirming its outlook that automotive operating margin will be higher than a year ago and that automotive operating-related cash flow will be substantially higher than 2012, potentially a record.
Ford expects North America full-year 2013 pre-tax profit to be the highest in more than a decade, with an operating margin of 9.5% to 10%; this compares to prior guidance of about 10%. The difference reflects mainly higher warranty expense of $250m to $300m associated primarily with the Escape 1.6 litre recall announced last month.
In South America, the company now expects results to be about breakeven as recent government actions in Venezuela have affected adversely the business and overall results in the region. This compares to prior guidance of about breakeven to profitable results for 2013.
The 2013 outlook for all other automotive business units, automotive net interest expense and Ford Credit is unchanged from prior guidance.
2014
In 2014, Ford will embark on its most aggressive product launch schedule in its history. The company will launch 23 redesigned or significantly refreshed vehicles around the world — more than double the 11 global vehicle launches in 2013.
“This is our most ambitious launch plan ever, as we continue to implement our One Ford plan,” said Shanks. “In 2014, we are investing across the world to support next year’s launches, but also to drive profitable growth beyond 2014 as we serve more customers in more markets and in more segments.”
Overall, 2014 represents the next step in delivering profitable growth for all, with total company pre-tax profit, excluding special items, projected at $7bn to $8bn.
North America
Ford will have 16 launches in North America in 2014. This is triple the number of vehicles launched in its largest region in 2013. The 2014 launches in North America will cover a significant%age of the region’s volume. As a result, Ford expects wholesale volume next year in North America to be lower than in 2013 and net pricing to be slightly unfavorable as it runs out prior models and assumes a continuation of a more competitive pricing environment for small and medium cars and utilities due to the weaker yen. Costs associated with this product growth will increase next year as well.
“The payoff for North America from the 2014 launches and investments we incur for future periods will be a stronger product lineup and volume and revenue opportunities into 2015 and beyond,” said Shanks.
As a result, Ford expects North America 2014 pre-tax profit to be lower than in 2013, with an operating margin ranging from 8% to 9%, consistent with the company’s targeted ongoing range of 8% to 10%.
South America
The One Ford plan is expected to improve profitability in Brazil and Argentina in 2014, particularly as customers continue to respond well to the company’s new products, but the company expects these improvements to be offset by deterioration in the external environment in Venezuela. This includes a planning assumption of a major devaluation in the bolivar — from 6.3 to 12 to the US dollar — with an unfavorable profit effect of about $350m.
As a consequence, results in 2014 for South America are expected to be about the same as in 2013 or about breakeven. There are risks to this outlook, however, given the volatility of the situation in Venezuela and increasing risks in the environment in Argentina.
Europe
Ford’s Europe transformation plan is on track. The Genk, Belgium, factory will close at the end of 2014 as planned, significantly contributing to an 18% reduction in Ford’s capacity in Europe, excluding Russia, and generating savings in 2015 and beyond. During the year, however, the company expects to incur restructuring costs of about $400m related primarily to accelerated depreciation of plant assets and production relocations. These costs will be reported in Europe’s operating results as they have been in 2013. In addition, the company will incur higher launch and engineering costs in 2014 consistent with its plan to add at least 25 new vehicles in five years.
The company also expects special item charges in Europe in 2014 of $400m to $500m, mainly related to personnel separations; these charges will not be reported in operating results.
For 2014, the company expects results in Europe to improve compared to 2013 as it continues the successful implementation of its transformation plan to achieve profitability in the region in 2015.
Asia Pacific
Ford’s operations in Asia Pacific have been undergoing a positive transformation during the last several years as it invested consistently for growth. The results of this investment have been strong growth, including record market share in 2013 and a profitable business, including what is expected to be a record full-year result this year.
The company will continue to execute its growth strategy for the region in 2014. It currently has six major facilities under construction across the region, with two facilities in China starting production next year and two more in 2015. In India, the two facilities now being built also will start production in 2015.
For 2014, the company expects pre-tax profit in Asia Pacific to be about the same as 2013 due to costs associated with its growth, a slower rate of top-line growth due to production constraints and a more competitive pricing environment, and unfavorable results in Australia as Ford restructures the business and reflects the effects of a weakening Australian dollar.
Ford Credit
Ford Credit is expected to perform well next year with profit about equal to this year. Growth should offset the continued normalisation of credit losses, the continued run off of higher-yielding assets and the impact of Ford Credit’s strategy to unencumber its balance sheet to build a stronger investment-grade company.
Mid-decade Outlook
Beyond 2014, Ford generally remains on track to achieve its mid-decade outlook, but its targeted global automotive operating margin of 8% to 9% is at risk. This is due to the severe European downturn and conditions in South America, especially in Venezuela, that were not anticipated at the time the guidance was provided in mid-2011. The company expects its results over the mid-decade period to be strong and improving.
