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Ford Sees Lower Margins in North America

Zacks Equity Research

Ford Motor Co. (F) revealed that its operating margins from North American operations will come down to 10.0% in 2013 from 10.4% last year as it expects the lion’s share of sales to generate from less-profitable small cars rather than high-margin trucks.

Ford also expects increased costs associated with higher volumes to affect margins growth. However, the automaker is banking on an improving U.S. auto market, higher market share and increased prices to boost its revenues.

In February this year, Ford topped all automakers in terms of year-over-year sales growth. The company’s sales rose 9.3% to 195,310 vehicles, driven by impressive sales of its Escape SUV and Fusion sedan. Escape sales soared 29% while Fusion sales surged 28% during the month. Together, the vehicles contributed more than a quarter of the company’s monthly sales.

General Motors Co. (GM) posted a 7.2% rise in sales to 224,314 vehicles in February, driven by strong Chevrolet Silverado and GMC Sierra pickup trucks sales like January. Sales of Chevrolet Silverado leaped 29% while GMC Sierra sales jumped 25% during the month.

Japanese automaker Toyota Motor Corp. (TM) saw a disappointing 4.3% rise in sales to 166,377 vehicles compared to its earlier performance as its popular car sales dipped 3% and its less popular sport utility vehicles and truck sales rose 16% during the month. Despite higher gas prices, sales of its Prius hybrid went down 13.5%.

Another Japanese automaker, Honda Motor Co. (HMC) recorded a 2.0% drop in sales to 107,987 vehicles as steep declines of its CR-V crossover and Civic small car sales offset its strong 35% rise in new Accord sales. The company also attributed heavy winter storms in the Northeast for the decline in sales.

Ford, a Zacks Rank #3 (Hold) stock, posted a robust 55.0% rise in earnings per share to 31 cents in the fourth quarter of 2012 from 20 cents in the same quarter of 2011 (all excluding special items). With this, the company has beaten the Zacks Consensus Estimate of 26 cents

Ford’s fourth-quarter pre-tax profit of $1.7 billion was the highest in a decade. Meanwhile, net profit surged 55.7% to $1.2 billion from $797 million a year ago. Thanks to the impressive North American results and, to some extent, solid improvements in Asia-Pacific-Africa operations.

Ford’s market share in 2012 was 15.2% in the U.S., 7.9% in Europe and 3.2% in China. In 2013, Ford expects market share in the U.S. to be higher than 2012, Europe to be almost the same as in 2012, and China to be higher than 2012.

During the year, Ford anticipates total company pre-tax operating profit to be the same as in 2012. Ford Credit is expected to report flat pre-tax operating profit compared with 2012.

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