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Time for a Tune-Up: Ford's 1Q17 Earnings Estimates

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Part 5
Time for a Tune-Up: Ford's 1Q17 Earnings Estimates PART 5 OF 8

Why Ford’s 1Q17 Margins Might Fall

Ford’s recent margins

In 4Q16, Ford Motor Company (F) reported adjusted gross profit of $2.8 billion with a gross profit margin of 7.1%—much lower than the adjusted gross profit margin of 11.4% in 4Q15. Similarly, the company’s adjusted net profit margin stood at 2.1% in 4Q16—significantly lower than its net profit margin of 8.7% in 4Q15. Now, let’s find out what analysts estimate for Ford’s margins in 1Q17.

Why Ford&#8217;s 1Q17 Margins Might Fall

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1Q17 margin estimates

Wall Street analysts estimate that Ford’s first quarter adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) margin will be 8.3%. The estimate is much lower than Ford’s 10.5% adjusted EBITDA margin in the first quarter last year.

Analysts expect the company to post a lower adjusted net profit margin of 4.5% in 1Q17—significantly lower than its 1Q16 net profit margin of 7.7%.

Ford’s warning

According to a Reuters report published on March 29, Ford cautioned investors that it “expects lower earnings per share in the first quarter and lower pretax profit in 2017 due to higher spending on commodities, warranties and investments and a drop in sales volumes especially fleet sales.”

Ford’s recent warning clearly reflects management’s low confidence in its 1Q17 earnings. Higher costs related to raw material and warranties could have a huge negative impact on Ford’s margins. Raw materials and warranties are major cost factors in the automotive business.

On the other hand, Ford’s 1Q margins could benefit marginally from improving truck sales. Lately, mainstream automakers (VCR) including Ford, General Motors (GM), Toyota (TM), and Fiat Chrysler (FCAU) benefited from higher truck sales compared to cars in the US market.

In the next part, we’ll explore possible highlights in Ford’s 1Q17 earnings.

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