Ford Earnings Report to Shed Light on China Ambitions

TheStreet.com

NEW YORK (TheStreet) -- If you're a global automaker but you only sell 3% of the cars in the world's largest market -- China -- you have some catching up to do.

I'm sure Ford Alan Mulally is thinking a lot about this issue these days.

Ford will report its first-quarter 2013 earnings before the market opens on Wednesday, and the report should shed light on the automaker's ambitions for China.

You should be able to listen to the subsequent earnings conference call by going to this page of Ford's fascinating Web site. Browse around while you're there and go to the "corporate page" to find lots of information about Ford's big-picture plans.

At the upcoming earnings call Mr. Mulally is likely to explain how Ford is planning to commit $5 billion to build five plants in China in addition to the four it currently operates. He'll no doubt speak about the company's determination to grow its market share to the point that eventually all nine plants will be producing year round.


The 15th annual Shanghai Auto Show began Sunday and runs through April 29 at the Shanghai New International Expo. A close friend just returned from Shanghai and said the city and its International Expo are nothing short of spectacular.

As the Shanghai Auto Show was ready to commence, Ford's CEO was there to tell the world's press that his company plans to double the number of dealerships in China to around 800 by the year 2015. In addition, Ford will be launching 15 new vehicles in the Chinese market as well as debut the Lincoln brand to one of the world's oldest cultures by 2014.

In an interview he told the members of the press, "Clearly this is going to continue to be the highest rate of growth for us, both in revenue and profits over the new few years. The entire team is spending more and more time in Asia-Pacific."


GeneralMotors reported that at the end of 2012 it had captured close to 15% of the Chinese market. Volkswagen AG had an even bigger share -- more than 18%.

Back on April 15, Ford's leading executive for Asia, David Schoch, said the company's share of the China market could reach 6% by 2015 after the company completes its model expansion and new vehicle plants. This would be quite a feat considering that China has more than 150 different automakers doing business within its borders.

Yet Ford, which began producing cars in China with a joint venture in 2003, is planning to catch China's second wave of growth in China's interior cities where opportunity is ubiquitous and unexploited.

Let's take a look at Ford's five-year chart to see how its stock has done in light of revenue per share and diluted year-over year earnings per share.

F Chart
F

Courtesy of YCharts

The only American automaker that didn't need to be bailed out after the 2008 financial debacle, Ford has held its own, although there is room for earnings and revenue improvement.

On average, analysts expect Ford to be profitable and for EPS to come in at 38 cents, down a penny from 39 cents a year ago.


Analysts are estimating an increase in revenue of almost 11% over the year-ago quarter, to nearly $33.8 billion, putting Ford on track to earn nearly $134 billion in 2013.

That's a remarkable accomplishment for a company that has less than a 5% operating margin and 4.22% trailing-12-month profit margin. Ford has a market cap of around $51.22 billion right, and shares were recently trading at $13.18.

Ford will soon start making a new four-cylinder engine that is only 1.5 liters, thus avoiding China's nearly $300 a year tax on vehicles with engines larger than than 1.5 liters. This new, fuel-efficient engine will be sold in various nations including the U.S. beginning this autumn.

Ford's CEO has decades of experience doing business with the government of China. For 37 years as an employee and executive at Boeing Boeing , he helped sell airplanes to the emerging-market giant.

For the last six years as the leader of Ford, he's become more and more familiar with how the Chinese market operates.

Mr. Mulally has said he is very encouraged by the new government leadership in Beijing and that's why he's putting the pedal to the metal and following through with Ford's $5 billion China expansion program.

Have you driven a Ford lately? I have -- a Ford Escape. It had good gas mileage, but I had an underwhelming impression of the structural and mechanical integrity of the 2012 model. It leads me to wonder whether Ford can build a low-cost auto in the world's largest market, where there are already offerings from every Japanese manufacturer, not to mention European carmakers.

Yet the word on the streets of Shanghai and Beijing is that there's a big group of car owners in China who are somewhat tired of driving Japanese autos and are looking for something really different. This could mean that Ford is in the right place at the right time with its expansion strategy.

Patient Ford investors are paid a dividend yield-to-price currently at 3.08%. If, just if, Ford's shares retest the April 18th intraday low of $12.65, the yield would increase to 3.16%.

It literally pays to be a Ford investor, especially at a price that seems fair to you. Do your own careful due diligence and place your limit buy order accordingly.

At the time of publication, Courtenay had no positions in stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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