Ford Motor Company on Friday (24 October) reported 2014 third quarter pre-tax profit down $1.4bn year on year to $1.2bn though it was nonetheless the automaker’s 21st consecutive profitable quarter.
Ford said the fall was due to lower volume, higher warranty costs and currency exchange effects.
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After-tax earnings per share were down 21 cents to 24 centsa share, excluding special items.
Net income dropped $437m to $835m, or 21 cents per share (off 10 cents) after special item charges of $160m for redundancies in Europe as the company is restructuring operations there, closing its Genk plant in Belgium and relocating large car output to Valencia in Spain.
Third quarter wholesale volume and company revenue declined 3% and 2%, respectively. Market share was higher in Europe, and the company reported record Q3 market share in Asia Pacific plus all-time record quarterly market share in China.
North America and Asia Pacific were profitable, but pre-tax results were lower than a year ago for all of automotive business units except Middle East & Africa. Ford Credit delivered improved year on year results.
With the Q3 results in, Ford has left its full-year outlook for pre-tax profit unchanged at about $6bn, excluding special items, as it continues with its ‘One Ford‘ plan.
“During the third quarter, we continued to introduce an unprecedented number of new vehicles and invest heavily in the new products and technologies that will deliver strong profitable growth beginning next year,” said president and CEO Mark Fields in a statement.
In the third quarter, it declared a dividend of $0.125 per share on the outstanding Class B and common stock and paid about $500m in dividends. It also completed a previously announced share repurchase programme.
Total automotive Q3 wholesale volume and revenue fell 3% year on year. The lower volume was due to an unfavourable change in dealer stocks related to product launches and supplier parts shortages, as well as declining industry volume in South America. Higher industry volumes in other regions was a partial offset.
Operating margin was 2.5%, a decrease of 4.5 percentage points from a year ago. Automotive pre-tax profit of $686m was $1.5bn lower than a year ago, mainly due to higher warranty costs, including recalls, mainly in North America, and lower volumes in North and South America, as well as adverse exchange, mainly in South America.
“The continued implementation of our One Ford plan enabled us to reach our 21st consecutive quarter of profitability, and we are encouraged in particular by our record market share in China,” said Ford CFO Bob Shanks. “Our focus remains on profitably growing the business, and our investments this year are laying the groundwork for our future success.”
North America
North America pre-tax profit was adversely affected in the quarter by higher warranty costs and lower volume. Wholesale volume and revenue declined 8% and 6%, respectively. The volume decrease was due to new product launches effects, including five weeks of downtime at the Dearborn Truck Plant for the redesigned F-150 launch, and supplier parts shortages. North America’s decline in revenue was due to lower wholesale volume.
Third quarter US market share was 14.1%, down 0.8 percentage points from a year ago. The decline reflected a planned reduction in daily rental sales and lower F-150 share as Ford prepared for the new model.
Ford expects North America’s full year, pre-tax profit to be lower than 2013 and operating margin to be at the low end of the 8% to 9% range.
South America
South America reported a pre-tax loss of $170m in Q3, a decline of $330m due to lower volume and adverse balance exchange.
Wholesale volume and revenue decreased by 21% and 17%, respectively due to a 700,000-unit decline from last year’s seasonally adjusted annual rate (SAAR) of 5.7m units. This reflects the impact of the weakening economy in Brazil, import restrictions in Argentina and lower production in Venezuela resulting from the limited availability of US dollars. Also contributing is a non-repeat of last year’s stock build. The revenue decline was due to lower volume and weaker currencies, partially offset by higher pricing.
South America market share, at 8.8%, was down 0.4 percentage points from a year ago due to the phase-out of the previous generation Fiesta Classic model line.
For the full year, Ford continues to expect South America to incur a loss of about $1bn.
Europe
Ford’s European unit booked a third quarter pre-tax loss up $257m year on year to $439m due to “Russia”, exchange effects and lower component pricing and non-recurrence of prior year gains.
Wholesale volume and revenue improved 6% and 7%, respectively due to a 700,000-unit increase in the Europe 20 SAAR, to 14.5m units, higher market share and lower dealer stock reductions. But this was offset partially by lower volume in Russia and Turkey. Europe’s higher revenue reflects higher volume in the Europe 20 markets.
Europe 20 market share, at 8.4%, was up 0.4 percentage points from a year ago. This was driven by a 0.5 percentage point improvement in the automaker’s retail passenger share of the five major European markets, to 8.8%, including the effect of the expanded SUV lineup to which the Indian-sourced B-Mz compact was recently added. It also was helped by a two percentage point improvement in the company’s commercial vehicle share, to 13%, reflecting the success of the comprehensive new redesigned Transit full model line and continued strong performance of the Ranger compact pickup imported from Thailand.
Ford expects Europe to incur a fll year loss of about $1.2bn, an improvement compared with 2013.
Middle East & Africa
This business unit booked a loss of $15m for the third quarter, a $10m improvement from a year ago.
Wholesale volume and revenue improved from a year ago by 9% and 5%, respectively.
Ford’s full-year guidance for the regions remains unchanged at about break-even.
Asia Pacific
Asia Pacific reported a third quarter pre-tax profit down $72m year on year to $44m due to higher structural costs and unfavorable exchange. The higher structural costs reflect Ford’s continued investment in products and growth, including five new plants that will come on line over the next nine months, as well as the Chinese launch of Lincoln.
Wholesale volume was up 5% from a year ago, and net revenue, which excludes the company’s China joint ventures, grew 3%. Wholesale volume in China increased 10% from a year ago. The higher volume in Asia Pacific was due to higher market share and industry volume. Ford estimates Q3 SAAR for the region at 38.9m units, up 1.8m from a year ago, due primarily to China. Higher revenue was due to favourable model mix.
Operating margin was 1.7%, 2.9 percentage points lower than a year ago.
Market share, at 3.6%, was a record for the third quarter and 0.2 percentage points higher. The improvement was driven by China where market share improved 0.4% percentage points to a record 4.7%, reflecting continued strong sales across the company’s vehicle range.
Ford continues to expect full-year pre-tax profit of about $700m in the region higher than a year ago.
Output
In the third quarter, total company production was about 1.5m units, 57,000 units lower than a year ago and 45,000 units lower than previous guidance.
The company expects Q4 production to be about 1.5m units, down 35,000 units from a year ago because of planned shutdowns, including three weeks of downtime at Dearborn Truck for the redesigned F-150. Compared with the third quarter, fourth quarter production is up 47,000 units due largely to the launch of new and freshened products, including the NAFTA market Transit and Mustang.
Ford Credit
Third quarter pre-tax profit of $498m at the captive finance unit was $71m higher than a year ago due to higher volume, thanks to increases in nearly all finance products, including non-consumer and consumer finance receivables globally, as well as leasing in North America.
Ford continues to expect Ford Credit full year, pre-tax profit to be $1.8bn to $1.9bn. Ford now expects Ford Credit’s distributions to its parent to be about $400m, up from the prior guidance of $250m due to expcted higher net income at Ford Credit.
2014 outlook
Ford continues to expect its 2014 pre-tax profits to be about $6bn, excluding special items. It is pegging North America operating margin at the lower end of its 8% to 9% guidance range, and expects better results in Europe, Asia Pacific and Ford Credit compared with 2013.
