News Column

Ford's best quarter in 3 years driven by record profit in North America

July 24, 2014

By Brent Snavely, Detroit Free Press



July 24--Ford's stock topped $18 per share on Thursday for the first time in 12 years Thursday after it posted its biggest profit in North America ever and its first profit in Europe in three years.

The Dearborn automaker reported pre-tax profit of $2.4 billion in North America even though it is in the middle of one of its heaviest product blitzes ever, which comes with added costs, and earned a profit in every region of the world except for South America.

All told, it was about the best possible way for Mark Fields to cap off his first official month as CEO of the Dearborn automaker after taking over for Alan Mulally on July 1, and helps to explain why he doesn't plan to change any part of the company's strategy now that he is in charge.

Ford earned $1.3 billion in the three months ending June 30, as a record $2.4 billion pre-tax profit in North America more than offset a loss in South America and costs of launching new vehicles.

Investors drove Ford shares as high as $18.12, their highest price since May 2002 in early trading. It was trading at $17.99 at 11:50 a.m.

"This was a very strong quarter for Ford," said Ford CFO Bob Shanks. "It was our strongest quarter for the company since the second quarter of 2011."

The second half will not be quite as rosy as the automaker idles one of its U.S. pickup truck plants to prepare for its new aluminum-sided F-150 and spends more on materials and advertising.

Ford said nearly all of its regional units contributed to its profits, including Europe, where the automaker reported a pre-tax profit of $14 million, its first profit there in three years.

Ford earned 40 cents per share for the quarter, beating analyst expectations of 34 cents per share. Revenue actually slipped to $37.4 billion for the quarter from $37.9 billion a year earlier.

The modest profit in Europe came from cost reductions, but Ford took a one-time $329 million charge against its joint venture in Russia, Ford Sollers, because of reduced cash-flow there.

"Clearly the near-term is quite negative," in Russia, Shanks said. "We still see the Russian market as a larger market, and at some point the largest market in Euorpe."

Ford's stock has increased more than 16% since the start of the year even though its earnings fell short of analyst expectations during the first quarter.

Today, CEO Mark Fields led the company's conference call with analysts for the first time since taking over for Mulally.

"I had the opportunity to sit side by side with Alan for the last eight years, in terms of developing the strategy and the implementation of that," Fields said. "My message to our team internally and now externally is one of continuity, but also acceleration of our plan."

Ford's profits are under pressure this year because it is launching 23 new vehicle worldwide, including 16 in North America.

Those new models include the F-150, Transit van, Focus and Mustang in North America and the Mondeo in Europe.

Each new model introduction comes with substantial development, manufacturing and marketing costs.

Much is riding on the 2015 F-150, the best-selling vehicle in the U.S., which will have an aluminum body.

For those reasons, Ford said it expects to earn between $7 billion and $8 billion for the year. Ford earned $7.1 billion in 2013.

"Really, it is a building block year for the company," Shanks said. "It really is a set-up for a step-up in 2015, and we still are very much on track for that."

Despite the costs related to the product launches, Ford earned $2.4 billion before taxes in North America, up slightly from $2.3 billion a year earlier.

Shanks said lower costs for raw materials and commodities, including steel, and growing sales of profitable models such as the F-150 all contributed to the results.

In South America, where the economies of several countries have struggled, Ford lost $295 million before taxes for the quarter, reversing a year-earlier profit of $151 million.

Ford also lowered its outlook for South America, saying it expects to report a larger loss than previously expected. Last year, Ford lost $33 million in South America.

In Asia, Ford said it earned a pre-tax profit of $159 million during the second quarter , up from $130 million a year earlier.

"The focus for North America remains around the launch of the new F-150 trucks, with production expected to begin in October at the Dearborn facility, and in early 2015 at the Kansas City facility," Barclays analyst Brian Johnson said in a report on Wednesday.

Contact Brent Snavely: 313-222-6512 or bsnavely@freepress.com. Follow him on Twitter @BrentSnavely.

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(c)2014 the Detroit Free Press

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Source: Detroit Free Press (MI)


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