Ford on Thursday (24 October, 2013) announced a record third quarter pre-tax profit of US$2.6bn, up $426m from Q3 2012.
However, the 17th consecutive quarter of profitability and Q3 earnings per share up five cents to 45 cents was tempered by a $359m fall in net income to $1.3bn due to pre-tax charges of $498m – with $250m of that for restructuring in Europe and $145m associated with a US salaried retiree lump sum payout programme.
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Wholesale vehicle unit volume and total company revenue rose 16% and 12%, respectively, and the automaker reported year on year market share gains in all regions, record Q3 pre tax profit for its automotive sector; a combined profit for regions outside North America for the first time since Q2 2011; record third quarter profit for Asia Pacific Africa; profit in South America; another (expected though reduced) loss in Europe while Ford Credit “remained solidly profitable”.
For the first nine months of 2013, pre-tax profit rose $1bn to 7.3bn; net income was $4.1bn.
Full year guidance also improved: Ford now expects total company pre-tax profit to be higher than 2012, up from previous guidance of “equal to or higher than 2012”. It is also expecting automotive operating margin to be higher than last year rather than about equal.
“Record results in the third quarter show the strength of our One Ford plan around the world,” said president and CEO Alan Mulally in a statement.
During the quarter, Ford contributed $1.1bn to its global funded pension plans, which included about $700m of discretionary payments to its US funded plans as part of a company’s pension “de-risking strategy”. It has settled $3.4bn since the programme began in August 2012. The lump sum programme is about 80% complete and concludes at the end of this year.
Total Automotive third quarter operating margin, at 7%, was 7/10 of a percentage point better than a year ago. First nine months volume and revenue were higher than in 2012 by 14% and 13%, respectively.
“North America continues to achieve strong profits and we saw significantly improved results outside North America,” said CFO Bob Shanks. “We substantially reduced our losses in Europe, set a record third quarter profit in Asia Pacific Africa and saw a $150m improvement in South America.”
North America pre-tax profit was about $2bn with operating margin of 10% – about equal to last year’s record profit. Results were hit by higher costs including spending on new products.
Wholesale volume and revenue increased 13% and 12%, respectively. In the first nine months, operating margin was 10.7%, 5/10 of a percentage point lower, while pre-tax profit was about $7bn, up about $600m. Wholesale volume and revenue both improved 15% year on year.
The automaker continues to expect higher pre-tax profit compared with 2012 and operating margin of about 10%.
South America’s pre-tax profit of $159m in the third quarter was $150m higher. Wholesale volume and revenue increased “strongly” with both up 22% helped by increased market share, higher volume and pricing gains. First nine months volume, revenue, operating margin and profit all improved.
“The overall environment in South America remains uncertain, but given the company’s performance in the first nine months, [we] now [expect] South America to be about break even to profitable for the full year. This is an improvement from prior guidance of about breakeven,” the automaker said.
Ford’s European operations are in the midst of restructuring with the closure of the Genk plant in Belgium and relocation of redesigned Mondeo (Fusion in North America), S-Max and Galaxy production currently under way. Ford said the process “remained on track”.
Nonetheless, the third quarter pre-tax loss of $228m was $240m better than a year ago – results in the region have improved in each quarter so far this year.
Wholesale volume and revenue improved by 5% and 12% and market share rose, taking revenue with it. Operating margin for the first nine months, however, declined 5% and the pre-tax loss was $1bn, both about equal to a year ago, despite about $400m of restructuring costs incurred this year and lower industry volume. Volume and revenue were up slightly from a year ago.
The company now expects its full year loss in Europe to be less than 2012, an improvement from prior guidance of a loss about the same as a year ago, reflecting progress made on its so-called Europe transformation plan.
The Asia Pacific Africa region saw reported its fifth consecutive quarterly profit with pre-tax results of $126m, an improvement of $81m. Wholesale volume was up 35% and revenue (which excludes Chinese joint ventures) grew 7%.
Q3 market share was 3.7%, 6/10 of a percentage point higher and a quarterly record. Chinese market share improved 8/10 of a percentage point to equal last quarter’s record of 4.3%, reflecting mainly strong sales of the Kuga, EcoSport and Focus. In the first nine months, volume, revenue, operating margin and profit all improved.
Guidance for Asia Pacific Africa is unchanged and the region is expected to be profitable for the full year.
A Q3 loss of $139m in Other Automotive reflects net interest expense, offset partially by a favorable fair market value adjustment on the company’s investment in Mazda, Ford said.
Ford produced about 1.5m units in the third quarter, up 187,000. Q4 output us pegged at 1.6m units, up 102,000 with a 15,000 unit cut in North America.
Ford Credit Q3 profit rose $34m to $427m due to higher volume in North America.
“Ford Credit remains key to [our] global growth strategy, providing world-class dealer and customer financial services, maintaining a strong balance sheet, and producing solid profits and distributions,” the automaker said. Full year pre tax profit is forecast about equal to 2012.
A Q3 loss of $64m for Other Financial Services was due primarily to charges related to the sale of a portfolio of finance receivables that was not included in the company’s sale of the Volvo Cars business in 2010.
