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Will North American Market Drive Ford's (F) Q3 Earnings?

Zacks Equity Research

Ford’s F North American market segment — which accounts for more than two-thirds of total automotive revenues — is likely to have fueled third-quarter earnings of the firm, which is set to release quarterly results tomorrow after the closing bell.

(Also read: What's in the Offing for Ford This Earnings Season?)

Q2 Highlights for Ford’s North American Market

In the last reported quarter, wholesale unit volumes in the North American segment totaled 693,000 (accounting for more than 50% of total vehicles sold), down 7% year over year. However, favorable product mix and higher net prices resulted in year-over-year increase in revenues. Revenues in the North American segment (which comprised 67% of total automotive sales) came in at $24 billion, higher than $23.7 billion in the year-ago quarter.

Ford’s trucks and SUV mix accounted for 83% of total automotive sales volumes from the North American market. Its wholesale volume increased 4% year over year with average transaction price of $36,400, depicting an increase of $1,500 from the year-ago quarter. Markedly, during the quarter, the company came up with record pickup truck sales performance since 2004.

Record Pickup Sales to Buoy North American Market in Q3

Ford’s transition from sedan lineup to an all-new winning portfolio of big vehicles like trucks and SUVs is likely to have reflected positively in its third-quarter performance. While car sales declined 29.5% year over year in the quarter, majorly amid the absence of Focus models and discontinuation of Taurus vehicle units, impressive sales volumes and pricing of trucks are likely to have offset the sagging sales of cars.

Total truck sales in the quarter increased 8.8% year over year to 309,920 units. Sales of F-Series and its new Ranger totaled 240,387 pickups, recording the highest third-quarter mark in 14 years. The company’s hot-selling cargo vans, including Transit, Transit Connect and E-Series, came in at 65,288 units, resulting in a new third-quarter record.

Highlights for Ford’s SUVs in the quarter include year-over-year increase in EcoSport, Edge and Expedition models, partly offset by lower vehicle sales for Escape, Flex and Explorer. Nonetheless, Ford’s truck and SUV mix — which accounted for 87% of total automotive sales volumes in North America — increased 5% year over year. Further, the average transaction price per vehicle came in at $37,900 at the end of the quarter, up 6.1% from the comparable year-ago period.

Evidently, the Zacks Consensus Estimate for third-quarter automotive revenues in the North American segment is pegged at $22,843 million, indicating an increase of 2.4% from the year-ago sales of $22,300 million. We believe that revenues from the North American segment are likely to have fueled the Zacks Rank #4 (Sell) company’s third-quarter bottom line, partly offset by declining revenues from European and Chinese markets, among others.

Ford’s Overall Earnings & Revenue Projections for Q3

The Zacks Consensus Estimate for the No. 2 U.S. automaker only after General Motors GM is earnings of 26 cents a share, which suggests a 10.3% decline from the prior-year profit. Also, the Zacks Consensus Estimate for sales of $34,174 million indicates a 1.4% decrease on a year-over-year basis.

Other Auto Stocks Lined up for Q3 Earnings on Oct 23

Other major auto stocks that are slated to unveil quarterly numbers on Oct 23 include Tesla, Inc. TSLA and O’Reilly Automotive, Inc. ORLY. Encouragingly, our model indicates that both these companies may beat on earnings in the to-be-reported quarter as they have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher.

While Tesla carries a Zacks Rank #2 (Buy) and has an earnings ESP of +79.68%, O’Reilly carries a Zacks Rank #3 and has an earnings ESP of +0.23%.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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