Ford earnings strong; N. America profit record set
Dearborn — Ford had its best quarter in 15 years, but it will need more help from its venerable F-150 to achieve the “breakthrough year” executives have predicted.
The Dearborn automaker has about 25,000 fewer pickups on dealer lots than it should, due to plant changeovers to build the 2015 truck with an industry-first aluminum body. Still, Ford on Tuesday managed to impress industry and financial analysts with better-than-expected earnings of $1.9 billion in the second quarter, including a record $2.6 billion pre-tax profit in North America with operating margins of 11.1 percent.
Ford expects the F-150 to be at full supply levels by the end of September. When that’s combined with a lineup that last quarter featured strong pricing and low incentives, it should mean even better revenue and profit margins. It also should help Ford win back some U.S. market share, which fell 0.3 percentage points year over year to 15 percent in the second quarter.
“If they’re able to get production levels to the place they want to go, all the numbers will move even more so in the right direction,” said Karl Brauer, senior analyst with industry research firm Kelley Blue Book. “The F-150 is a huge part of this market ... Ford knows it would be unwise to have those supply levels stay low over an extended period.”
Ford’s overall earnings report on Tuesday marked its best automotive quarterly profit since 2000.
“We delivered an outstanding second quarter, a great first half of 2015, and we are confident the second half of the year will be even stronger,” President and CEO Mark Fields said in a statement.
Ford’s pre-tax profit was $2.9 billion, up $269 million from a year ago, and it posted revenue of $37.3 billion, beating analysts’ estimates of about $35.3 billion. Ford posted earnings-per-share of 47 cents per share, beating estimates by a dime.
Through the first half of the year, Ford made $4.3 billion in profits and achieved 9.1 percent profit margins.
Ford’s stock closed up 1.92 percent to $14.83 a share Tuesday.
Its record North American profits — which came despite limited supplies of the F-150, and a newly refreshed Ford Explorer SUV — “shows the strength of the overall portfolio, the strength of the structure of the business,” Chief Financial Officer Bob Shanks told reporters.
Executives said they’re pleased with the progress the new F-150 has made since its launch late last year. Average transaction prices are the highest in the industry, incentive spending is down and the F-150 is leaving dealer lots at twice the rate of competitors’ trucks.
“Ford’s long-term outlook remains positive, but it has to resolve F-150 production issues to leverage the new truck’s — and overall company’s — full potential,” Brauer said.
Despite the low supply, customers are buying more expensive models of the pickup. Last week Ford announced a high-end Limited model that will be more expensive than the Platinum, which starts at around $51,000. Next year it will introduce its Raptor performance truck.
“We’re not done plumbing every dollar of revenue we can out of that product,” Shanks said. “We’re very excited about it, and the customers are demanding it.”
Overall, Ford has completed 12 of its 16 planned global product introductions this year, including the Edge, Explorer and Lincoln MKX. “Our launches have gone very, very well,” Shanks said.
Sales in China slowing
Ford set a second-quarter record in Asia Pacific, where it made $192 million, up $33 million from a year ago. The improved numbers were driven by lower costs and a favorable exchange. Ford said its China joint ventures contributed $411 million to pre-tax profit.
Despite the gains in Asia Pacific, Shanks acknowledged that China, a crucial market, is slowing. Ford downgraded its sales forecast there from 24.5 million to 26.5 million to between 23 million to 24 million vehicles. Shanks said the passenger car segment there is growing, but the commercial vehicle business is down. He still expects sales in China to reach 30 million by the end of the decade.
Ford has sold 543,488 vehicles in China through June this year, flat from a year ago. Last year, Ford sold a record 1.1 million vehicles there. It launched its Lincoln luxury brand in China in November and plans to introduce 15 vehicles there this year.
“We’re still very bullish on China, but it’s going to go through its fluctuations,” Fields said. “That’s what happens in emerging markets.”
Ford lost $185 million in South America in a troubled business environment due to currency issues.
It lost $14 million in Europe, and lost $46 million in the Middle East and Africa. Europe’s numbers were down, due in part to an unfavorable currency exchange rate, and Ford said it’s continuing its transformation plan there in the hopes of eventually turning a profit. Pricing there is strong thanks to a wave of new products, like the S-Max and Fiesta in Russia.
“We’re seeing some green shoots, but we know we have a little work to do,” Fields said.
‘From good to great’
Ford reconfirmed its guidance of a 2015 pre-tax profit between $8.5 billion and $9.5 billion. It says there’s an opportunity for its North American operating margin to be in the upper half of the 8.5 percent to 9.5 percent range.
“The second half is going to be even better,” Fields said. “We’re more confident than ever we’ll deliver a breakthrough year.”
Shanks said a better supply of F-150s means its numbers are “going to go from really good to great.”
This is the final earnings report before the end of the current four-year contract with the United Auto Workers. Formal negotiations began last week. The UAW is looking for, among other things, raises for its members.
UAW President Dennis Williams last week said, “Ford has done very well ... and we’ll be reminding them of that daily.” The union will likely use these latest profit numbers in its push for raises for workers, while the automakers will try to keep labor costs down.
General Motors Co. last week posted higher-than-expected earnings of $1.1 billion. Fiat Chrysler Automobiles NV will release second-quarter earnings Thursday.