Dearborn — With a $7.2 billion profit for 2013, Ford Motor Co. has now earned more than $42 billion in global profits during the past five years, more than wiping out the $30.1 billion it lost during the height of the auto crisis and setting a solid foundation for growth in new markets around the world.
But Ford may have reached a financial apex in the current auto cycle.
A record number of new-vehicle launches this year, heightened competition, continued brick-and-mortar expenses and unpredictable economic conditions in South America will strain the automaker’s 2014 profits.
“This is a preparation year, as we consolidate the gains of the past and prepare for even stronger growth in the future,” Bob Shanks, Ford’s chief financial officer, said at the automaker’s Dearborn headquarters Tuesday.
Ford in 2006 began a long-term restructuring of its business, starting with the appointment of Alan Mulally as chief executive officer. Mulally instituted a plan known as One Ford that in part aims to create fewer vehicles that reach broader audiences. Ford is pulling forward some of its introductions in regions like Europe and the Middle East, and in 2014 will debut a record 23 cars and trucks, more than doubling the number of new vehicles in 2013. Costs associated with those launches will drag down Ford’s profits for the time being.
“It feels they are taking a step backwards,” said David Whiston, analyst at Morningstar Inc., in a telephone interview. “But in the auto industry, you need to spend money to make money.”
While 2014 will offer more long-term promise, 2013 offered more stability, and the results showed in Ford’s year-end financial report released Tuesday.
The automaker reported a pre-tax profit of $8.6 billion, or $1.62 per share, compared to $8 billion, or $1.41, a year earlier. Revenue rose nearly 10 percent to $146.9 billion as the automaker posted earnings per share of 31 cents, beating the 28-cent average forecast by Wall Street analysts.
Ford stock spiked early Tuesday but closed nearly flat at $15.72 per share, up a penny.
“Pessimists would say they make earnings expectations more uncertain, while optimists feel that Ford is using cash flow intelligently to invest in the future,” said David Kudla, analyst at Mainstay Capital, in a Tuesday investor note. “We understand why the stock has been trading lower, but think the market may be overreacting to short-term issues.”
Pre-tax profit off slightly
Ford expects its global pre-tax profit — which in 2013 was $8.6 billion — to fall to between $7 billion and $8 billion in 2014.
North America earned Ford a pre-tax profit of $8.8 billion last year, the best since at least 2000, when Ford split its operations into regions.
The company’s Asia-Pacific-Africa region turned a $415 million profit, one of a handful of records set in the growing region, which will add two more manufacturing plants this year.
Of Ford’s five major business regions — which include North and South America, Europe, Asia-Pacific and the newly formed Middle East and Africa spinoff — only Europe is expected to do better this year than in 2013.
Ford chalked up a $1.6 billion loss in Europe last year, and does not expect to be profitable there until 2015.
The automaker has announced a 20 percent cut in production capacity and thousands of layoffs in Europe; it expects to be hit with restructuring costs of $400 to $500 million this year.
New F-150 carries risk
In North America, profits will soften because of the launch of the reinvented F-150 pickup, which will debut near the end of the year. The truck’s body is made of aluminum — a lighter but more expensive material than steel — and must clear many hurdles to retain its highly profitable status. Current steel-body trucks fetch five-figure profits for each one sold.
“With the new product comes a good amount of risk,” Barclays analyst Brian Johnson said in an investor note this week. “There has already been a delay in the production schedule ... likely due to challenges in stamping, riveting, and welding of the aluminum. Moreover, Ford also faces risks with regard to potentially higher warranty expense and customer acceptance.”
Ford said Tuesday there will be 13 down weeks throughout the year at its Dearborn and Kansas City assembly plants related to the new truck. Production this year could fall by as much as 10 percent, according to dealers and analysts briefed on production plans.
Ford also cited continued currency manipulation of the Japanese yen — which can help automakers like Toyota Motor Corp. and Honda Motor Co. price competitive models at cheaper price-points than Ford — as an ongoing concern, especially when it comes to profit margins.
“It feels like screws getting tighter and tighter,” Shanks said of the currency manipulation.
South America includes two major disruptions: Argentina, where the peso has been devalued at the greatest rate in more than 10 years, and Venezuela, where access to U.S. dollars is severely restricted. Ford expects similar results for South America this year. The company lost $34 million there last year.