News Column

Record profit in North America propels Ford to best quarter in 3 years

July 24, 2014

By Brent Snavely, Detroit Free Press

July 24--Ford said today it earned $1.3 billion for three months ending June 30, 6.3%more than the same period a year ago as an improved performance in Europe and record profits in North America helped the automaker overcome costs for product launches.

"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 Dearborn automaker 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.

The company reported revenue of $37.4 billion for the quarter, down from $37.9 billion for the same period a year ago.

"Our One Ford plan continues to deliver, enabling us to reach our 20th consecutive quarter of profitability," Mark Fields, Ford's president and CEO said in a statement.

In Europe, Ford's performance improved because of cost reductions and because the economy of many of the countries there has finally begun to stabilize. The improvement in Europe also came even as Ford took a one-time $329 million charge against Ford Sollers, its joint venture in Russia, because the company reduced its projection for 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 14% since the start of the year to $17.78 per share even though its earnings fell short of analyst expectations during the first quarter and highly-respected Ford CEO Alan Mulally retired.

Today, Fields, who has been groomed for the CEO role for several years, will lead the company's conference call with analysts for the first time since taking over for Mulally.

Ford's profits are under pressure this year because the automaker is in the middle of its most aggressive set of product launches in 50 years.

The automaker is in the middle of launching 23 global vehicle launches this year, including 16 in North America.

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

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

Those launches include the 2015 F-150, the most popular car or truck in the U.S., which is being launched with an aluminum body.

For those reasons, Ford said it expects it will end the year with a total profit of $7 billion to $8 billion. That is less than Ford's profit in recent years.

"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 a pre-tax profit of $2.4 billion in North America -- a record profit for the division. Last year, the automaker reported a pre-tax profit of $2.3 billion for the division.

Shanks said the company achieved the record profit largely because of lower costs for raw materials and commodities, including steel, and as well as growing sales of profitable models such as the F-150.

In South America, where the economies of several countries have struggled, Ford reported a pre-tax loss of $295 million for the quarter compared with a profit of $151 million during the same period a year ago as sales dropped 22%

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 compared with $130 million for the same period last year as the company continues to gain market share.

Analysts and investors expect Ford's performance will be even better next year.

"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 Follow him on Twitter @BrentSnavely.


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Source: Detroit Free Press (MI)

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