Mon | Aug 21, 2017

Hard road for Ford

Published:Sunday | October 30, 2016 | 10:00 AM

DEARBORN, Michigan (AP):

Troubles in Ford Motor Co's home market including slowing US sales, a massive recall and the difficult launch of new heavy-duty pickups are hurting the company's bottom line.

Ford said on Thursday its net income plunged 56 per cent to US$957 million in the third quarter. The earnings, of 24 cents per share, compared to earnings of 55 cents per share in the July - September period a year ago.

Dearborn-based Ford beat Wall Street's expectations, with adjusted earnings of 26 cents per share. Analysts polled by FactSet had forecast 20 cents. But that didn't do much to offset concerns that Ford is headed for a rough patch. The company has already announced temporary plant shutdowns in North America this month to curb production and plans more actions in the fourth quarter.

"I would call our approach realism. Not optimism, not pessimism. Realism," CEO Mark Fields said in a conference call with analysts. "We don't see a recession on the horizon, but we see a marketplace that, from a cycle standpoint, has matured."

North America, with its record-setting US sales and love affair with profitable SUVs and pickups, has been Ford's cash cow in recent years. Ford earned a record US$10.8 billion pre-tax profit in 2015 US$9.3 billion came from North America.

But after an unprecedented six-year climb, US sales are peaking. Ford's North American sales were down 11 per cent in the quarter and revenue dropped 8 per cent. Next week, Ford will temporarily cut one of three shifts in Kansas City, Missouri, making the F-150 pickup America's best-selling vehicle.

"What's happening to the company is really about what's happening in North America," Ford's chief financial officer, Bob Shanks, said.

And it's likely to keep happening. Ford still expects a full-year pre-tax profit of US$10.2 billion, but that's down from its initial forecast of US$10.8 billion. Ford has said that its profits are likely to fall next year before rebounding in 2018.

Ford's shares fell 13 cents (or 1.1 per cent) to US$11.75 in midday trading. Its shares are down almost 22 per cent over the past year.

"As much as it's not fair, investor sentiment is not favourable on (automakers) these days despite fairly strong results," Barclay's analyst Brian Johnson wrote in a note to investors.

Ford had some big one-time costs in the third quarter. The company spent US$600 million US$40 million less than it initially projected to replace faulty door latches on 2.4 million cars and trucks. It also launched production of its first all-new Super Duty pickup in 18 years, with all-aluminium sides that required a complete revamp of its Kentucky truck plant.

Ford's overall revenue fell 6 per cent to US$35.9 billion. Automotive revenue was US$33.3 billion, which matched Wall Street's expectations.

Worldwide sales fell 4 per cent to 1.5 million vehicles. They were down in every market except Asia.

Ford's North American pre-tax profit declined 55 per cent to $1.3 billion. Fields said that as US sales plateau, pricing will get more competitive. The company spent an estimated US$4,092 per vehicle on incentives in September, according to car-buying site TrueCar.com. That was lower than rivals like Fiat Chrysler and General Motors Co.

 

Margins over markets

 

"We prioritise margins over market share, and you can see that in our results," Fields said.

But Ford's North American operating margin dropped from 12.3 per cent in the third quarter last year to 5.8 per cent this year. Shanks said the margin would have been 8.4 per cent without the costly recall. By contrast, GM's margin was 11.2 per cent.

The company also lost US$295 million in South America and US$152 million in the Middle East and Africa.

Europe eked out a US$138 million profit, its best third quarter since 2007. But Shanks warned that Ford faces a US$600 million charge in the region in 2017 because of the Brexit vote, which will cost Ford US$200 million this year.

Ford also earned US$131 million in its Asia Pacific region, where its sales and market share grew.

Ford's operating cash flow was negative US$2 billion for the quarter. Shanks said it would be positive again in the fourth quarter.