Ford Motor Company (NYSE: F) is set to report its third-quarter earnings on Thursday, Oct. 27. The company has guided to a lower-than usual quarterly result because of costs related to new-product launches, but its overall forecast for the full year remains relatively upbeat.
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Will that change on Thursday? Here are three questions for investors to consider when Ford reports its earnings result.
How are Ford's profit margins in North America holding up?
Ford's North America region has long been the company's profit engine. Over the last couple of years, Ford's profit margins in North America have been exceptionally good (11.3% last quarter), thanks to a robust U.S. market and strong ongoing demand for the Blue Oval's highly profitable pickups and SUVs.
When it comes to profits, the F-150 is probablyFord's most important product. Upscale models like this King Ranch are especially profitable. Image source: Ford Motor Company.
Ford sold plenty of pickups and SUVs in the U.S. last quarter. But it appears that the market has hit a cyclical plateau, and sales growth is increasingly scarce. Some competitors have responded to the growth stall by boosting incentives in hopes of gaining market share. But that strategy has a cost: It puts pressure on profit margins.
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To its credit, Ford's incentives didn't rise significantly during the quarter. But it felt the pressure: Sales of Ford-brand SUVs fell 3.4% in the third quarter, and sales of the all-important F-Series pickup line were down 3.3% Ford recently said that it would idle several key plants, including factories making the F-150 pickup and Escape SUV, for a week to help reduce swelled inventories.
That gives us two questions when Ford reports. First, how did its margin hold up in North America as competitive pressures rose in the third quarter? And second, given these rising pressures, what does Ford's outlook for North America look like for the remainder of the year and into 2017?
How will the ongoing fallout from Brexit hurt Ford Europe?
Rival General Motors (NYSE: GM) said that the drop in value of the British pound following the U.K.'s decision to exit the European Union hurt its European result by about $100 million -- and a $300 million hit is possible in the fourth quarter.
To be fair, GM warned investors about that possibility back in July. At the same time, Ford CFO Bob Shanks said that Brexit's impact on Ford was likely to total about $200 million for the full year, with $60 million of that already on the books from the second quarter. Shanks said that Ford's exposure was limited because the company had been able to hedge a great deal of its currency risk.
That leads us to two questions when Ford reports. First, how much impact will Brexit have on Ford's European result this time around? And second, will Shanks stick with that $200 million forecast for the full-year impact?
Will Ford revise its 2016 guidance downward again?
GM's guidance for 2016 is upbeat, but Ford's hasn't been. The Blue Oval's executives have been more pessimistic about the prospects for the U.S. market than their old Detroit rivals.
Early this year, Ford said it expected its full-year adjusted pre-tax profit to be equal to or greater than the $10.8 billion it earned on that basis last year.
Image source: Ford Motor Company.
Ford earned $6.8 billion in the first half of 2016, and while Shanks said that Ford's third-quarter result would be lower than usual because of heavy new-product costs, he maintained the full-year guidance. There was a caveat, though: Shanks said that Ford would need to make some cost cuts to deliver on its guidance.
Ford did lower its guidance a bit in a Securities and Exchange Commission filing in early September, when it said that an expanded recall of defective door latches would cost it $640 million. But it stuck by the broader picture, saying that it now expected its full-year adjusted pre-tax profit to be "about $10.2 billion."
To make that revised number, Ford will have to book $3.2 billion in profit in the second half of 2016. It has already said that third-quarter profits will be slim. The question when Ford reports is this: Will it stand by that revised $10.2 billion full-year profit estimate, or will it be lowered again?
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John Rosevear owns shares of Ford and General Motors. The Motley Fool owns shares of and recommends Ford. The Motley Fool recommends General Motors. 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.