Ford Beats Q3 Earnings View, Narrows FY17 EPS Outlook

Ford F-Series truck with bullet trailer - photo - November 2017In the last week of October, Ford Motor Company (NYSE: F) reported a 63% increase in the fiscal 2017 third-quarter profit, compared to last year. The quarterly results also topped analysts’ estimates. Still, so far, the stock has not moved up much as the company is undergoing a major shake up in the leadership team, under the new CEO Jim Hackett. On the basis of strong guidance and turnaround plans, we anticipate a short-term rally to begin soon.

The Dearborn, Michigan-based company reported Q3 2017 revenues of $36.451 billion, up from $35.943 billion in Q3 2016. During the July-September quarter 2017, the net income jumped to $1.564 billion, or $0.39 per share, from $957 million, or $0.24 per share, in the similar period last year. Considering the slowdown in the US automobile market, analysts had expected Ford to report revenues of $32.92 billion in the third-quarter.

Excluding charges, adjusted net income was $1.734 billion, or $0.43 per share, in the recent quarter. That compares with $0.26 per share in the year-ago period. The reported figures also surpassed the Wall Street estimates of $0.33 per share.

A record pre-tax profit in Asia and strong performance in North America were the main reasons for the impressive rise in profits. A shift in the consumer preference towards trucks and SUVs also aided Ford to realise an increase in earnings. The third-quarter also saw the best performance of F-Series truck in the US, since 2005. F-Series automobile sales increased 14% in the recent quarter.

The company announced that it continues to see strong demand for the expensive Super Duty trucks such as Lariat, Platinum and King Ranch. Last year, Ford had to recall approximately 2.4 million vehicles, which include models such as Focus, Mustang, and Lincoln MKC. However, it was not the case in the recent quarter. Thus, during the third-quarter, Ford recorded lower costs, which boosted pre-tax profits from North America to $1.70 billion.

The Asia-Pacific business reported pre-tax profits of $289 million in third-quarter. However, in Europe, the company booked a loss of $86 million, partly due to the negative impact of Brexit and the launch of the Fiesta. Last year, the European region reported pre-tax profit of $138 million. Ford also lost $158 million in South America and $60 million in the Africa and Middle East.

To ensure a turnaround in the operations, Jim Hackett announced that the company would cut $14 billion in costs, decrease capital allocation for the development of traditional cars running on internal combustion engines and increase spending for the development of electric cars.

On the basis of a strong demand for its F-Series truck, Ford raised the lower range of its earnings guidance for full year 2017. The company now expects adjusted earnings of $1.75 to $1.85 per share, compared to the prior range of $1.65 to $1.85 per share. Thus, a strong rise in Q3 earnings, an increase in demand for F-Series trucks, and narrowed outlook is expected to turn Ford bullish in the short-term.

Technically, the stock is consolidating at around 12. The momentum is making new highs. Further, the non-lag moving average is also signalling an uptrend. Thus, we forecast an appreciation in the stock price.

Ford - Technical Analysis - 13th November 2017

To benefit from the rally, we are planning to buy a call option offered by a trustworthy binary broker listed here. A strike price of about $12.0 is preferred for the trade. At the time of investing, we will choose a date around November 17th for the expiry of the option.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.