Ford earnings down; Fields not worried

First Posted: 4/30/2015

DETROIT — Ford still does not have a full supply of the profitable F-150 full-size pickup and that was reflected in first-quarter earnings down almost 7 percent from a year ago when truck plants were still stamping metal and printing money.

Ford had a net income of $924 million in the first quarter, below last year’s $989 million, and also below Wall Street estimates.

The automaker lost money in Europe and South America and while North America was profitable, there was more money to be made if it were not for launch costs and lost production at key plants that were down to prepare to make new models, said Chief Financial Officer Bob Shanks.

The automaker reported revenue of $33.9 billion for the quarter, down $2 billion from a year ago. The 1.6 million vehicles sold globally was down by 21,000 vehicles.

“The first quarter was a good start to the year,” said CEO Mark Fields in a call with analysts where he explained that the product launches will pay off in the second half of the year. Automotive revenue, operating margins and cash flow will all be higher this year than in 2014.

“We are on track for the breakthrough year we expect 2015 to be,” Fields said.

In the first three months of the year, North American operations earned $1.3 billion, below last year’s $1.5 billion and the region’s operating margin dipped to 6.7 percent.

Shanks said F-150 volume was down more than 40 percent or 60,000 units from a year ago with the Kansas City, Mo., plant still ramping up — it should be at full production by mid-year

And volume of the Edge, a profitable mid-size crossover, was down 50 percent or 15,000 units with down time to retool the plant in Oakville, Ontario.

Shanks said full volumes of the two vehicles would have increased revenue by another billion dollars and North America would have had an operating margin of about 10 percent. He is confident Ford will end the year with an operating profit in North America of 8.5 percent to 9.5 percent which is half a point higher than the original forecast.

“Given the magnitude of changeover activity at the company (F-150) we believe the results may be seen as a relief by the market,” said Adam Jonas, analyst with Morgan Stanley, in a report after the investor call. “A better-than-expected outcome in North America with higher margin guidance should be a source of comfort to investors despite concerns overseas.”

Overall, Ford reported earnings of 23 cents per share, below the 26 cents expected by Wall Street. The company’s $1.4 billion pretax profit was up $24 million from a year ago when the financial results factored in a costly recall, bad weather and devalued currencies that resulted.

But Ford is still recovering from 2014 when it had a record 24 vehicle launches around the world which was costly and disruptive, but also positions the company to reap the benefits this year.

The automaker revised its North America outlook and now expects an operating profit margin of 8.5 percent to 9.5 percent for the year, up by half a point. The margin dropped to 6.7 percent in the first quarter but Shanks said it would have exceeded 10 percent if Ford had not lost so much profitable F-150 and Edge production.

Barclay’s analyst Brian Johnson said it likely will take until the third quarter when F-150 pickup production is fully ramped up and demand can be gauged against the competition for a true “feel of profitability.”

Ford executives are optimistic, noting demand is for the top trim levels of the F-150 and residual values for the 2015 model are higher than the outgoing model and much of the competition.

While Ford has strong aspirations for its larger vehicles, small cars are not selling well and the automaker has announced plans to cut the third shift at Michigan Assembly Plant in Wayne, Mich., that makes the Focus compact car, Focus ST and Focus electric as well as the C-Max hybrid and C-Max Energi plug-in hybrid because of their slow sales in a current era of low gas prices.

In Asia Pacific, Ford earned $103 million, down from $291 million a year ago but Shanks warned the operations could be close to breakeven in tne second quarter.

Meanwhile, Europe remains problematic. While there are signs of recovery in Western Europe, many economies are still weak and incentives are used to sell vehicles. Fields said on any given day, there are competitors offering discounts of 20 percent or more across their vehicle lineup.

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