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Is Ford’s Dismal 2018 Outlook Feeding the Bears in 1Q18?

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Mar. 22 2018, Updated 12:55 p.m. ET

Ford Motor Company

In 2017, Ford Motor Company (F) maintained its position as the second-largest automaker in the US by sales volume. Last year, the company’s US sales were higher than Toyota (TM) and Fiat Chrysler (FCAU) but lower than those of General Motors (GM). However, Ford’s US sales remained lower than Toyota’s in January 2018, driving pessimism.

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Recent financial data

In 4Q17, Ford missed Wall Street analysts’ earnings estimate of $0.45 and reported adjusted EPS (earnings per share) of $0.39, up 30% YoY (year-over-year). The company’s automotive segment revenues for the quarter rose 7% YoY to $38.5 billion. Ford’s global wholesales volume rose by 2% YoY to 1.7 million units in the fourth quarter.

Despite this positive growth in its revenues, the automotive segment’s (XLY) 4Q17 pre-tax profit fell 30% to $1.4 billion from $2.0 billion in 4Q16. With this, the company’s operating profit margins fell to 3.7% from 5.7% a year earlier. Ford’s management attributed weaker profit margins to higher commodities prices, costs associated with recalls, and currency headwinds driven by the pound.

A weak outlook for 2018

Clearly, Ford’s recent profits have already been suffering due to higher commodities prices. This is the reason why a jump in steel and aluminum prices after new import tariffs are likely to burden the company with extra raw material costs.

During the 4Q17 earnings announcement, Ford’s management also confirmed dismal guidance for 2018. According to the guidance, the company’s adjusted EPS could be in the range of $1.45 to $1.70, lower than its adjusted EPS of $1.78 in 2017.

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