Ford Motor Co.’s second-quarter earnings fell 9 percent to $2 billion as the company faced slower sales and rising incentives in the U.S., higher costs in China and weakened currency in the U.K. following the Brexit vote.
The Dearborn automaker on Thursday said its second-quarter numbers — including a pre-tax profit of $3 billion and margins of 7.7 percent — contributed to a record first half, but warnings of a weak second half sent its stock tumbling.
“We now see a number of risks the entire Ford team is working to mitigate,” President and CEO Mark Fields said on a conference call with analysts.
Chief among those concerns is a plateauing U.S. sales market, whose negative effects will be amplified in the third quarter by downtime for its highly profitable Super Duty pickup as it transitions to a new aluminum-bodied model.
As a result, Ford said its full year 2016 guidance is “at risk,” but it still expects to match or exceed 2015’s financial figures through “profit improvement actions” that could include production slowdowns.
“They definitely have some challenges, but it’s not disastrous,” said Michelle Krebs, senior analyst with Autotrader.com. “Sales have peaked, but the sky’s not falling; it’s still going to be a very good profit-sharing year.”
Ford’s stock, which closed Wednesday at $13.48 a share, tumbled 8.2 percent to close at $12.70.
Ford’s second-quarter earnings per share of 52 cents a share was off 8 cents from a collection of Wall Street analysts, who expected Ford to make 60 cents per share. The automaker posted revenue of $39.5 million, up 6 percent.
“While we’re still having a strong quarter ... it is not what (analysts) had expected,” Chief Financial Officer Bob Shanks said.
Ford’s earnings were again dominated by North America, where it made $2.7 billion — down 5 percent from a year ago — and profit margins of 11.3 percent, down from 12.2 percent. Ford took a $100 million loss in the second quarter because of the Takata air bag recall.
The company’s North America numbers were down $135 million from the same time a year ago. New-vehicle launches like the refreshed Fusion, Lincoln MKZ, Focus RS and others helped sales, but the automaker will take a hit when it changes over to the aluminum version of its Super Duty pickup.
The automaker said the industry is suffering from rising incentives as competing car companies put more discounts on cars to maintain market share in a slowing market. “The bottom line is we’ve seen a tougher pricing environment this quarter and we will face one going forward,” Fields said.
Ford has changed its 2016 sales forecast, which includes medium- and heavy-duty trucks, from 17.5 million to 18.5 million vehicles, down to 17.4 million to 17.9 million vehicles.
“I think we’re starting to see a maturation of the economic cycle,” Shanks said of the U.S.
Ford also posted a best-ever second quarter in Europe, where it made $467 million, which included a $60 million hit from the Brexit vote. Ford expects to lose $145 million in the second half because of the the United Kingdom’s decision to leave the European Union. It expects to lose $400 million to $500 million each year in 2017 and 2018.
Shanks said there are no specific plans for job cuts or manufacturing changes in Europe. “The team understands we have to respond to the new reality we’re facing.” .
Ford lost money everywhere else. It lost $265 million in South America, where a difficult Brazil economy again gave it trouble. It lost $65 million in the Middle East and Africa, and $8 million in Asia Pacific — the first time it’s posted a loss there in 13 quarters.
The worse-than-expected figures and weak outlook worried some analysts.
“We cannot be optimistic for a positive catalyst to move the stock up this year,” Morningstar Equity wrote in an investor note. “A slowing U.S. and China market for Ford plus Brexit has negative cash-flow implications for our model and also hurts sentiment on what was already a stock with poor sentiment due to fears of peak auto sales in the U.S.”
Despite the second-quarter miss, Ford’s first-half financials were strong. Its pretax profit was up 35 percent to a record $6.8 billion.
Ford recently began selling new vehicles like the Focus RS, and refreshed Fusion and Lincoln MKZ. Later this year, it will roll out the Lincoln Continental, aluminum Super Duty and Raptor performance truck.
Ford is the final Detroit automaker to report earnings. General Motors Co. last week reported a record $2.7 billion second-quarter earnings, while Fiat Chrysler Automobiles on Wednesday reported a profit of $352.8 million.
Despite concerns across the globe, Fields said a weak second half to 2016 isn’t an indication of things to come and that 2017 will be “another solid year.”
When asked about how the automaker tries to focus on running the business in spite of sluggish stock prices, Fields said “it’s kind of like when you’re having a bad golf game; you just play through it.”