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Recall, Product Launch Costs Slash Ford's Third-Quarter Profit

Reuters

First published: October 28, 2016, 4:07 PM IST | Updated: October 28, 2016
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Recall, Product Launch Costs Slash Ford's Third-Quarter Profit
Ford logos are seen at the assembly line of the Ford car factory of Saarlouis. (Photo: Reuters)

Ford Motor Co reported a more than 50 percent drop in third-quarter net income, 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 signalled 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 percent at $11.76 in premarket trading and have fallen 16.5 percent this year.

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; 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.

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