Recall, product launch costs slash Ford third-quarter profit
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Ford Motor Co reported a more than 50 percent drop in third-quarter net income on Thursday, saying its North American business suffered from lower sales, higher recall costs and a complicated introduction of a new pickup truck.
The profit exceeded Wall Street expectations, however. The automaker said it still expected full-year earnings of $10.2 billion and a return to positive cash flow after burning through $2 billion in the third quarter.
Net income dropped to $961 million, or 24 cents a share, from $2.2 billion, or 55 cents a share, a year earlier.
Excluding one-time items, Ford said earnings were 26 cents a share, beating the analysts’ average estimate of 20 cents compiled by Thomson Reuters I/B/E/S.
Third quarter revenue was $35.9 billion, down 6 percent, and North American operations revenue was $21.8 billion, down 8 percent.
Ford had signaled most of the major numbers at a September investors presentation, and the results released on Thursday were little changed. The company’s shares were down about 1.4 percent at $11.76 in afternoon trading.
Ford’s pretax operating margins were down by about half at 5.8 percent in North America and 3.3 percent worldwide.
“What’s happening to the company is what’s happening in North America,” Chief Financial Officer Bob Shanks told reporters on Thursday.
Shanks said three factors accounted for a $1.6 billion decline in Ford’s North American pretax profit: costs of ramping up the new Super Duty pickup truck, which has an average price of about $62,000; a door-latch recall charge of $600 million recall; and lower profits from the company’s F-150 pickup truck.
Ford is cutting production of the F-150 in the fourth quarter and, in a new action, will idle one shift for a week at a plant in Kansas City, Missouri, to reduce inventories of the truck, Shanks said. The F-150 is Ford’s best-selling vehicle and one of its most profitable models.
The company said pretax profit in Europe jumped to $138 million from $9 million.
However, Shanks said the falling value of the British pound would cost Ford $140 million in the second half of 2015 and $600 million next year. Ford is 80 percent hedged against the currency for 2017, he said.
Income from Ford’s Chinese joint ventures rose 26 percent to $320 million. “China is very, very strong,” Shanks said.
Questions & Answers
Q.What were the main reasons for the significant drop in Ford's third-quarter profit?
What were the main reasons for the significant drop in Ford's third-quarter profit?
Ford's profit dropped due to lower sales in North America, increased recall costs, and expenses associated with introducing a new pickup truck. The North American pretax profit specifically declined by $1.6 billion.
Q.Despite the drop, did Ford meet financial expectations for the quarter?
Despite the drop, did Ford meet financial expectations for the quarter?
Yes, despite the substantial drop in net income, Ford's profit and earnings per share (excluding one-time items) actually exceeded Wall Street's expectations. Earnings were 26 cents per share against an estimated 20 cents.
Q.How is Ford addressing the lower profits from its best-selling F-150 pickup truck?
How is Ford addressing the lower profits from its best-selling F-150 pickup truck?
Ford plans to cut F-150 production in the fourth quarter. It will also temporarily idle one shift for a week at its Kansas City, Missouri plant to help reduce existing inventories of the truck.
Q.Which international markets performed well for Ford during this period?
Which international markets performed well for Ford during this period?
Ford saw strong performance in Europe, where pretax profit jumped to $138 million from $9 million. Income from its Chinese joint ventures also rose significantly by 26 percent to $320 million.