BackFord profit falls less than predicted during F-150 model change
Ford reported net income of $835 million, or 21 cents a share, down 34% from $1.27 billion, or 31 cents per share, a year earlier
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Dearborn, Michigan: Ford Motor Co., making less money while F-150 truck production is suspended, said third-quarter profit fell less than analysts had projected as the company continues to grow in China where it now outsells Toyota.
Ford, which said last month it won’t achieve its 2014 profit goals, reported net income of $835 million, or 21 cents a share, down 34% from $1.27 billion, or 31 cents per share, a year earlier, according to a statement on Friday. Excluding one-time costs, earnings were 24 cents a share, beating the 19-cent average estimate of 18 analysts surveyed by Bloomberg. A year earlier, Ford earned 45 cents by that measure.
Beset by rising recall costs, widening losses overseas and heavy spending on new models, Ford told investors on 29 September that pretax profits this year will fall to $6 billion, short of its goal of $7 billion to $8 billion. Chief executive officer (CEO) Mark Fields, who replaced a retiring Alan Mulally on 1 July, also lowered expectations on profits for next year, as high costs to roll out the aluminium-bodied F-150 squeeze margins. Ford said on Friday that efforts to introduce the F-150 this year are “on track."
“With Ford, we have a management team that is no longer experiencing the halo effect of Alan Mulally running the show," Michael Razewski, a New York-based principal at Douglas C. Lane & Associates, who oversees more than $4 billion including Ford shares, said before the results. “Now it’s about execution. You’ve got the product, go out there and sell it, don’t make mistakes, high quality, no recalls."
Ford shares rose 0.5% to $14.48 at 8:49 am New York time, before regular trading. Ford shares have lost 12% from 28 September, the day before it said the 2014 goals weren’t attainable, through Thursday. The shares fell 6.7% this year before Friday.
Lower Output
Ford had pretax operating income of $1.41 billion in North America in the third quarter, down from $2.3 billion a year earlier. That was good for a 7.1% margin, down from 10.9% in 2013. Ford’s US sales fell 0.5% this year through September to 1.88 million cars and light trucks, according to researcher Autodata Corp. Its US market share declined to 15.1% from 16% a year earlier, according to Autodata, based in Woodcliff Lake, New Jersey.
“We did have some challenges," Bob Shanks, Ford’s chief financial officer (CFO), told reporters on Friday of the automaker’s third quarter. Those included $630 million in recall costs and a $166 million negative effect from a strong dollar. Costs to bring new models to market caused Ford to consume $700 million in cash in the third quarter, its first negative cash-flow period since the first quarter of 2010, Shanks said.
Recall Costs
“We had a 7.1% operating margin" in North America in the third quarter, Shanks said. “If you take out the recalls, we would have had a 10.2% operating margin."
The company doesn’t foresee high recall costs in the fourth quarter, he said.
Ford said last month that its North American operating profit margin will be at the low end of the 8% to 9% range it forecast and will remain in that range next year, disappointing investors who expected the new truck to restore margins of more than 10% the company had in 2013.
“With the F-150 unlikely to be fully ramped until the second half of 2015, the stock could remain in a holding pattern for the next six months," Brian Johnson, an analyst for Barclays, who rates Ford the equivalent of hold, said in a 30 September note in which he trimmed his 12-month target price on the shares to $19 from $20. He has since cut that by $2 more.
Lost Production
Ford lost an unspecified amount of production in North America in the third quarter due to parts shortages from suppliers Shanks declined to identify.
“We will not make up that production fully in the fourth quarter," said Shanks, who added that one of the plants involved will be slowed by the introduction of a new model in the fourth quarter.
In Ford’s Asia-Pacific region, pretax earnings slid to $44 million from $116 million last year. Ford sales in China surged 26% in the first three quarters of the year, as it sold a record 813,412 vehicles on strong demand for its Kuga and EcoSport sport-utility vehicles (SUVs) and Focus and Mondeo sedans. Last year, Ford’s sales in China surpassed Toyota Motor Corp. for a record market share of 4.7%, and it officially began selling Lincoln models in China on Thursday.
“We feel extremely excited about what is going on in China," Shanks said “The products are resonating very well in China with consumers. The progress on Lincoln—we’ll have eight dealerships in China by the end of the year—is going very, very well."
Idled Plant
Ford’s third-quarter automotive sales fell 3.2% to $32.8 billion, as the company cut North American production by 4.1% to 720,000 cars and trucks. The average estimate for automotive third-quarter sales was $33.4 billion.
This month, Ford is to begin building the new F-150 pickup, its best seller, at a factory in Michigan to go on sale by year’s end. To install new factory tools for the truck, Ford said it will shut down its two F-150 plants for 13 weeks this year—costing the automaker production of 90,000 of the profitable model. It will lose more production next year as it takes six weeks to convert its F-150 factory near Kansas City.
The truck sheds as much as 700 pounds (318 kilograms) to improve fuel economy, mostly by using aluminium instead of steel in its body. In 2013, Ford’s F-Series was the top-selling vehicle line in the US for the 32nd consecutive year, with sales rising 18% to 763,402. That helped drive Ford’s North American pretax profit to a record $8.78 billion last year.
‘Disappointed’ in Europe
In Europe, where Ford said it will lose $1.2 billion this year, pretax operating losses widened to $439 million in the third quarter from a loss of $182 million last year. The automaker said its sales in Europe are up 7.8% this year, outpacing industrywide gains of 6.1% as that market slowly recovers from a deep recession.
Ford took a $160 million charge in the third quarter to close a factory in Europe.
Ford is “disappointed" it won’t achieve its previous target to turn a profit in Europe next year, Shanks said. Economic upheaval in Russia is a significant factor in Ford’s struggles in the region, he said.
“Who knows about Russia?" Shanks said. “It’s an extremely difficult situation. The lower price of oil will exacerbate that."
Automotive debt, which excludes Ford Motor Credit, was $14.9 billion on 30 September, a decrease from $15.4 billion on 30 June, the company said.
“Ford has a good balance sheet, and you’re getting paid a nice dividend while you wait for this company to execute," Razewski said. “They’re basically not getting credit for any growth right now. But there is still growth potential both here domestically and internationally." Bloomberg
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