The Ford Motor Company Analysis
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The most likely candidate to replace Mulally is Mark Fields, president of the company’s North and South American operations. Although the board has not made an official statement, executives privately have said Fields is the choice to eventually take over the post (nytimes.com).
Mark Fields has worked for Ford for 23 years and has played an intricate role in reversing years of loses in the Americas division, and turning it into on the most profitable for the company. Fields was promoted to Chief Operating Officer in late 2012, a position that has gone vacant since 2006 when Jim Padilla retired (www.telegraph.co.uk). He created “One Ford” a plan that united business units and cut costs. Bill Ford has said he would like to see the next CEO come from within the ranks of the company.
A company achieves sustainable competitive advantage when an attractive number of buyers prefers its products or services over the offerings of competitors and when the basis for this preference is durable (The Quest for Competitive Advantage). Ford launched a new strategy to increase market share revenue by producing “smart cars” with great fuel efficiently. The company has started a centralized decision making system, allowing the company to explore local and international market opportunities. Management has become much more involved in product development to satisfy customer expectations and communication has vastly improved (wpsenna.wordpress.com). This strategy has also cut a lot of excessive operations cost as well. Raw materials were greatly reduced and the online manufacturing process allows for one process of engineering and production rather than segmentation.
This gives Ford a major cost advantage over its competitors.
The Ford market position has been improved due to several aspects. Since the company did not file for bankruptcy or take a government loan, consumer trust has been increasing. Its products are widely accepted and smart cars will help the company with market share. Because of the continued rising energy prices, the demand for better, more fuel efficient, automobiles has increased all over the world. Ford has also developed world cars; cars assembled in one part of the globe and sold in another(wpsenna.wordpress.com). Ford SYNC has been installed in several models which allow the driver to be connected in many ways. It is fully integrated entertainment and communication system. Developed by Microsoft, the technology uses Windows Embedded Automotive operating system (wpsenna.wordpress.com).
Return on equity shows how much profit a company generates from shareholders money. Ford really stands out among all automakers which illustrates managements’ effective use of funds. Benjamin Graham and warren Buffet use this metric and like to see R.O.E. above 15%. Ford currently sits at 28.5%, more than double that of GM who sits in second(seekingalpha.com). Competition will be a greatest risk to the company going forward. They will need to continue to have supply meet demand.
The Ford Motor Company engages in corporate social responsibility through the Ford Motor Company Fund and Community Service. Since 1949, this community relations arm has been responsible for the company’s volunteer efforts and philanthropy. The company makes donations to qualified non-profit organizations that promote community enrichment in three areas: driver safety, education, and community life. In 2012 the company donated about 30.1 million dollars; 21.6 million of which was in the form of grants, the rest was direct corporate giving (corporate.ford.com). That same year around 25,000 Ford employees in 48 countries and 16 states, worked on 1,350 community service projects totaling more than 115,000 hours. In Mexico 212 elementary schools have been built since 1966 with the help of Ford. Some 1.6 million students have graduated from these schools.
Ford Mobile Food Pantries program helps deliver meals in southeast Michigan and has recently expanded to other U.S. locations. Ford has also donated to other charities that include: Feeding America, United Way, Jesse Brown Memorial Youth Scholarship Program, and the Red Cross.
Ford Driving Skills for Life (DSFL) program is a free safe driving curriculum that has trained hundreds of drivers through web based and in-person driving sessions. The program started in 2003 and today has been expanded all over the globe.
Ford Next Generation Learning (Ford NGL) is a program geared at preparing young people for the global 21st economy. Ford Partnership for Advanced Studies (PAS) is a high school curriculum that helps students learn engineering, alternative energy, and business (corporate.ford.com). The Ford Oval Scholars awards scholarships to students throughout the U.S.. It recognizes students who make a difference in their communities. Ford is also a proud sponsor of the Susan G. Komen Race for the Cure. The company’s volunteers raised 530,000 dollars for March of Dimes and 319,000 for National Multiple Sclerosis Society’s Michigan Chapter (corporate.ford.com).
There is no denying the fact that shares for the Ford Motor Company have slipped in the recent weeks, down almost 20% from a 52 week high of 18.03. As of February 10, 2014 the stock closed at 14.87(finance.yahoo.com). The Market Value of the company is around 58 billion. Although the stock price has fallen a bit as of late, operations have been gaining strength. The company is expected to roll out 16 new models in North America but sales impacts will not be felt until 2015. It is for this reason that sales are expected to be flat in 2014(finance.yahoo.com/news/automakers-back-american).
Although US auto manufacturers seem to have great earnings potential nowadays, the market is still giving them low equity multiples; seemingly denying them of higher valuations. Ford has done the best of these companies presenting consecutive solid growth quarters. Since 2009 the stock has been highly rewarding, just buying and holding it would have generated a 744% return (seekingalpha.com). Warren Buffet said it best, “be greedy when others are fearful, and be fearful when others are greedy.” Ford gained about 14% in value over the last 12 months, which is not superb, but their progress operationally is good which is why the company has a lot of upside in the years to come.
Ford reported pre tax profit for the fourth quarter 2013 of 1.3 billion and 8.6 billion for the year. This is an increase of 603 million over 2012. Although the fourth quarter profit was down over lat year, this represents 18 straight quarters of profit. This ranks among the best in company history. The automotive sector saw 6.9 billion pre tax profit, which made up 80.5 %, while the Financial sector saw 1.7 billion, compared to 1.6 in 2012 (seekingalpha.com). Although the fourth quarter was down over last year, the report is tremendous overall. North America was the best market coming in at 8.8 billion and Europe was a 1.6 billion loss, mostly due to high competition and lack of great reputation. It was a record year for North America. After tax profits for 2013 were 7.2 billion, a 26% increase over last year. Earnings came in at 1.76 per share. On December 31st net receivables were around 100 billion against 89 billion a year ago. Cash flows for the year totaled 6.1 billion, with 500 million coming in the last quarter, making it the 15th straight quarter of positive cash flow. Gross cash of 24.8 billion exceeds debt by 9.1 billion (ford posts full year 2013 pre tax profit of 8.6 billion). The fact that Ford market share is increasing in such a highly competitive North American car market really demonstrates its high quality and reputation. The company does have some major debts on its balance sheet, but that is tied mostly to factories. Since there probably will not be another auto bust in the coming years have an EBITA (earnings before taxes, interest, depreciation, and amortization) multiple of 4 could push the market value up to around 88 billion with a projected stock price around 21.50, which would be a 50% gain over its current price (finance.yahoo.com/news/automakers-back-american).
Ford has consistently beaten its top competitor, GM, in gross, operating, and net profit margins over the past three years, and that trend I expected to continue. The company continues to make huge strides in emerging markets such as India, China, and the Middle East. Expected lower contributions to its pension plan in 2014 should yield higher profits and cash flows (seekingalpha.com).
Ford President and CEO Alan R. Mulally, was very pleased with the 2013 report and says the company is positioned very well for 2014. As a result of this past years performance, Ford will make profit-sharing payments to around 47,000 eligible U.S. hourly employees as part of the collective bargaining agreement it has with the United Auto Workers union. Payments work out to be around 8,800 per person. Ford expects 2014 to be about equal to 2013 with a slight increase in receivables. There are some risks that could hinder that projection that include: lower than expected acceptance of Ford new or existing products, unfavorable fluctuations in FX rates, wrk stoppages, unusual litigation or government investigations, and cyber security risks (ford credit earns full year 2013 pre tax profit).
Ford currently has this month, five research firms calling the stock a “strong buy”, seven have it as a “buy” and seven have it as a “hold”, and only one has it as a “sell” (finance.yahoo.com/a/ao?s=F+analystopinion) This trend has been favorable over the last 3 months. The mean score for the week (1 being strong buy, 5 sell) is a 2.4, this is up 0.1 over last week.