Why Did Ford’s Recent Earnings Reflect Weakness?

In 2015, Ford Motor Company’s (F) adjusted earnings stood at $1.84 per after with a rise of $1.53 per share in 2014. The company also maintained good YoY (year-over-year) earnings growth in 1Q16. However, its 2Q16 and 3Q16 earnings largely disappointed investors.

In this part of our series, we’ll look at some key factors that have affected Ford’s earnings in 2016. First, let’s take a closer look at its earnings growth on a quarterly basis.

Ford’s 1Q16 and 2Q16 adjusted EPS (earnings per share) stood at $0.68 and $0.52, respectively, representing positive earnings growth of ~196% and 11%, respectively, YoY (year-over-year). In 3Q16, its adjusted EPS fell to $0.26, 42% lower than its EPS of $0.45 in 3Q15.

Ford’s shrinking profitability has been haunting investors in the last few quarters. In 3Q16, the company reported a YoY fall in its revenue, sales volume, and margins. However, these dismal earnings were not a big surprise for Wall Street, and many notable analysts were already expecting the downward trend in the company’s margins to continue.

We should note that during its 2Q16 earnings release, Ford highlighted the risks and challenges it could face in achieving its 2016 guidance.

Mainstream automakers (IYK) such as Ford, General Motors (GM), Fiat Chrysler (FCAU), and Toyota Motor (TM) generate a significant portion of their revenues from the US market. Therefore, any signs of softening US auto sales could hurt investors’ sentiments.

Next, we’ll look at Ford’s global sales volumes in the first three quarters of 2016.