Why Ford's Q1 Sales Data Hints At Weaker Profits

By Markets Fool.com

With Ford Motor Company's first-quarter presentation on April 28 fast approaching, I decided to take a look at the automaker's sales through March in three critical regions to get a better idea of what results to expect. The conclusion I came to is that some people could misunderstand Ford's first quarter. Let's look at the sales results, and explain why this quarter will be different.

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Ford China
Investors should get familiar with Ford's sales in China, as the region will be a source of tremendous sales growth through 2020. Consider that many auto industry analysts expect new-car sales in China to reach 30 million by 2020, compared to only 20 million in 2014 which still made China the world's largest automotive market. That would have China generating nearly one-third of the planet's new-vehicle sales by 2020, which is pretty staggering.

In the first-quarter Ford's sales in China reached nearly 297,000 vehicles which was a healthy 9% increase over last year's first-quarter. Also, in order for Ford to maximize its sales potential the company has continued to invest in production capacity. Ford opened its sixth assembly plant which increased its capacity by a quarter million vehicles. Also, not to be overlooked, Ford launched its luxury Lincoln brand in China late last year which will help the automaker generate more profits sooner rather than later.

Ford had a solid first quarter in China, which the company is beginning to count on as another pillar of revenue, but let's switch gears and look at a recently problematic region for automakers: Europe

Ford Europe
Investors are, unfortunately, well aware that Ford has burned through more than $4 billion in Europe since the beginning of 2012, while the country slowly trudged through its economic recovery. Ford sold more than 335,000 vehicles in Europe through the first-quarter of 2015 which was another strong 12.5% gain over last year's first-quarter. Even better, 73% of the automaker's passenger car sales were in retail and fleet channels, which was 4 percentage points above the industry average, and that's important because those channels are more profitable than selling to rental companies.

Also, Ford is preparing to launch its new Vignale Mondeo, which is essentially a very premium Fusion, because without Lincoln's presence Ford needs to find different ways to increase the margins on its passenger cars.

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Lastly, the good news continues for Ford as rival General Motors has almost entirely pulled its Chevrolet brand out of Europe and those consumers have taken notice of Ford. While the automaker is increasingly setting itself up for a very profitable future, that future is not 2015 and we can't expect profits out of Europe for the first-quarter.

Ford's sales in both China and Europe are increasing and the sales themselves are turning to a more profit rich mix -- good news for investors. Switching gears again, despite sales gains in China and Europe, the U.S. is going to be the problem child for Ford's first-quarter results.

Ford North America
Ford's company sales, which include Lincoln, were up a meager 2% in the first-quarter. While the F-Series sales also checked in with a meager 2.3% increase compared to last year, it's overall truck segment was up 8.2% -- thanks mostly to the Transit.

It's well known that North America generates a vast majority of Ford's overall profits, so when sales aren't surging here, neither will profits. That's especially true when Ford's best-selling and most profitable vehicle, the F-150 full-size truck, is selling at a slower pace because its production facilities won't be running at full speed for another couple of months.

That's where some investors might mistake Ford's first-quarter for being weak, at least in historical terms. What is typically a stronger quarter in terms of overall profits will probably be the automaker's weakest this year.


Image from Ford's Q4 2014 presentation, slide 28.

While the first quarter will technically be weaker than the norm, it's more accurate to say that it will simply be "different." Keep that in mind when Ford reports its results, and enjoy the ride through 2015 as sales continue to accelerate overseas and profits begin to stack up when the F-150 is rolling out at full production capacity in the U.S. market.

The article Why Ford's Q1 Sales Data Hints At Weaker Profits originally appeared on Fool.com.

Daniel Miller owns shares of Ford. The Motley Fool recommends Ford. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.