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Ford swings to $800 million loss in fourth-quarter 2016

The second-largest auto manufacturer in the US, Ford Motor Company (NYSE: F), reported a net loss in the fiscal 2016 fourth-quarter earnings, compared to a net profit in the similar period last year.

While the adjusted earnings surpassed analysts’ estimates, the revenues did not.

Naturally, nvestors and speculators were not impressed with the results. The stock, which closed at $12.35 on Tuesday, is expected to decline further due to the reasons mentioned below.

The Michigan-based company’s fiscal 2016 fourth-quarter revenue of $38.7 billion was lower than $40.3 billion reported in the corresponding quarter of 2015.

For the recent quarter, the company posted a GAAP net loss of $783 million or $0.20 per share. Excluding charges, the adjusted net income was $1.218 billion or $0.30 per share and below the Wall Street analysts’ estimates of $0.31 per share.

Ford Vehicles

Analysts and traders were not happy with the format used to publish the results. It was not similar to the format submitted to the SEC. The GAAP and non-GAAP results of last year’s similar quarter were not available. Furthermore, there was no clarification for the $800 million GAAP loss in the fourth-quarter. The company later clarified that the fourth-quarter net loss was due to a $3 billion charge taken on the basis of revalidation of the assets and obligations in the company’s retiree-benefit plans. Ford stated that it also took a $200 million charge related to suspension of the construction of its assembly plant in Mexico.

During the fourth-quarter, the wholesale volumes decreased 68,000 to 1.71 million vehicles. Ford also opined that its fiscal 2017 pre-tax profit will be lower than 2016. Ford continues to face headwinds in South America. Frequent product recalls and rising expenses also add up to the problems.

In China, the company is facing heavy competition from local manufacturers. This has forced the company to slash prices. The strength of the US dollar (or Yuan’s weakness) is also affecting the bottom line of the company. Ford anticipates the growth in China to slow down due to smaller tax cut benefits.

The net profit margin of the company has declined to 2.1% in the current quarter, from about 8% three quarters ago. Thus, fundamentally, the stock of Ford is expected to remain weak in the current quarter.

The stock has formed a double top pattern as shown in the image below. The stochastic oscillator continues to form lower highs. This indicates a loss of momentum in the stock. So, a trader can expect the share price to erode further.

Ford Stock Price: February 1st 2017

Ford Stock Price: February 1st 2017

A low or below contract can be bought to profit from the probable decline of the stock of Ford Motor company. The binary option contract should have an expiry date in the second week of February. Furthermore, to improve chances of success in the trade, the contract should be purchased when the stock trades above $12.30.


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