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What to Expect from Ford’s Profit Margins in 4Q17

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Jan. 19 2018, Updated 7:33 a.m. ET

Existing trend in Ford’s profit margins

In 3Q17, Ford Motor Company (F) reported adjusted pre-tax profits of $1.7 billion for its automotive segment with an operating profit margin of 5%. That’s much higher than its adjusted operating profit margin of 3.3% in the same quarter of 2016. Its 3Q17 adjusted net profit margin stood at 4.6%, which is better than 2.9% in 3Q16. Higher profits from the North American and Asia Pacific regions boosted the company’s profitability during the quarter. Now let’s see what analysts are estimating for Ford’s profit margins in 4Q17.

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4Q17 margin estimates

Wall Street analysts are estimating Ford’s fourth-quarter adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) margin to be 7.4%. That’s slightly lower than its 8% adjusted EBITDA margin in the fourth quarter of 2016.

However, analysts estimate that Ford will have a higher adjusted net profit margin of 4.8% in 4Q17, which is also higher than its net profit margin of 3.4% in 4Q16.

Key factors

In all three months of 4Q17, Ford’s US SUV (sports utility vehicle) sales witnessed solid strength. In October, November, and December, SUV sales rose 5.3%, 13.3%, and 8%, respectively. These higher sales could act as a positive factor for the company’s profit margins in 4Q17 since SUVs tend to yield higher profitability than small cars.

In October and November, Ford’s US retail vehicle sales rose 3.5% and 1.3%, respectively. That positive trend in overall 4Q17 US retail sales could boost the company’s profits in 4Q17.

Automakers (IYK) Ford, General Motors (GM), Toyota (TM), and Fiat Chrysler (FCAU) have benefited from strong US SUV and truck demand in the last few years.

In the next part, we’ll explore what could be some possible highlights in Ford’s 4Q17 earnings release.

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