Ford surprises with lower 2Q profit on trouble in US, China

Ford CEO Mark Fields said the company will take actions to improve its results, including cutting production to meet demand and making sure all markets have the right mix of vehicles.

“It’s kind of like when you’re having a bad golf game you just play through it,” he said.

It wasn’t the result many had expected. After Ford’s chief rival General Motors Co. reported last week that its second-quarter profit more than doubled to $2.87 billion, many analysts thought they’d hear similar good news from Ford.

There was some good news. Because of its strong first quarter, Ford still managed to a record first-half operating profit of $6.8 billion. In Europe — long a trouble spot — second-quarter sales rose 11 per cent and pretax profits nearly tripled to $467 million, thanks in part to stronger sales in Russia.

But Ford also fed into many investors’ lingering worries about slowing U.S. sales and market pressures in China.

“They’re trying to underpromise and overdeliver for the back half of the year,” said James Albertine, an auto analyst with Consumer Edge Research.

Ford’s results reflected some Ford-specific problems, like the Super Duty launch. But its warnings about U.S. sales could dampen the whole industry. Ford’s Chief Financial Officer Bob Shanks said after an unprecedented growth streak, the U.S. market is starting to plateau. Ford’s North American sales were flat from a year ago, and Ford’s market share in the region didn’t budge despite a big increase in incentive spending. Pretax results in the region fell 5 per cent to $2.7 billion.

“We don’t see growth, at least in the near term,” Shanks said. Ford lowered its estimates for full-year industry sales in the U.S.

GM’s shares dropped nearly 4 per cent to $30.86.

There were other storm clouds. Shanks said Britain’s exit vote will likely cost the company $400 million to $500 million annually in lower sales and weaker currency until the exit is completed. There’s too much uncertainty to predict much after that, Shanks said, but the company is considering how to mitigate its risks. Ford is the top-selling brand in the U.K. and has engine and transmission plants there.

In Asia, Ford recorded its first pretax loss — of $8 million — in more than three years. Shanks said Ford sold fewer commercial vehicles in China and spent heavily on engineering and warranty costs. The weaker yuan also impacted sales of its luxury Lincoln brand.

Ford’s losses in South America also more than doubled to $265 million because of continuing economic issues in the region.

Ford Credit also surprised with a 21-per cent decline in earnings to $400 million. Ford’s credit arm noted an increase in delinquent accounts and lower auction values for small cars, which are in low demand.

Ford’s adjusted profit, of 52 cents per share, compared to a profit of 54 cents per share in the April-June period year ago. That missed Wall Street’s expectation of a profit of 60 cents per share, according to analysts polled by FactSet. Excluding one-time items such as separation payments, Ford earned 49 cents.

Revenue was up 6 per cent to $39.5 billion. Automotive revenue of $37 billion beat analysts’ expectations. Ford sold 1.7 million vehicles during the quarter, which was flat from a year ago.

Ford’s automotive operating margin fell from 8.4 per cent in the second quarter last year to 7.7 per cent this year. Its North American operating margin fell from 12.2 per cent to 11.3 per cent.

Dee-Ann Durbin, The Associated Press

by Canadian Press

Ford surprises with lower 2Q profit on trouble in US, China

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