By Christina Rogers
Ford Motor Co. reported net income down 7% in the first quarter
as better-than-expected North American profits were dented by
losses in Europe and South America, which continue to be a drag on
the bottom line.
The Dearborn, Mich. auto maker earned $924 million, or 23 cents
a share, in net profit for the first quarter, down from the $989
million, or 24 cents a share, booked in the same year-ago period.
The company's pretax operating profit of $1.4 billion, or 23 cents
a share, missed Wall Street expectations by 3 cents.
The performance represents a muted start for new Chief Executive
Mark Fields in 2015. The company said the timing of important
vehicle launches and capacity additions should generate more
earnings momentum over the second half of the year, allowing the
auto maker to meet its targeted operating-profit range of $8.5
billion to $9.5 billion.
Sales totaled $33.9 billion for the quarter, down 6% from a year
earlier. Revenue fell in each of the company's five regions as the
strong dollar, product changeovers and dismal conditions in South
America hit the top line.
Foreign exchange has been a thorn for many of the world's
biggest auto makers. General Motors Co. last week said a weak euro,
Brazilian real, British pound and Russian ruble led hit revenue and
operating margins hard; Japan's No. 3 player, Honda Motor Co. ,
pointed to the strong dollar as a factor in its 43% plunge in
fiscal fourth-quarter net income.
Ford attributed its earnings miss to analysts factoring in a
lower tax rate than the actual one effective for the quarter, a
difference of about 2 cents. Ford's stock has budged little in the
past year, down less than a percentage point through close Monday
and off nearly 1% in premarket trading Tuesday.
"We're happy about the consistency of our results," Bob Shanks,
Ford's Chief Financial Officer, said in a meeting with reporters
early Tuesday. While the auto maker's core North American region
showed pricing improvement, higher structural, warranty and
material costs more than wiped out that benefit.
Mr. Shanks expects the company's most profitable and
best-selling vehicle, the F-150 truck, to be a big contributor to a
second-half improvement. Ford is in the midst of a long ramp-up of
a new aluminum version of the pickup, leading to tighter
inventories and lower volumes--even as American vehicle buyers
clamor for heavier vehicles amid low fuel prices.
The CFO expects market share and margins to get a boost in the
second half as more F-150s become available (volumes of the cash
cow were down 40% during the first quarter). Closely watched North
American operating margins fell in the quarter to 6.7%, behind
like-2014's 7.3% and GM's 8.8% margin in the first quarter of 2015.
GM launched a bevy of new trucks and SUVs over the past year,
helping it ride a lucrative trend on its home turf.
Mr. Shanks said a lack of F-150 supplies in the first quarter
equaled about a $1 billion operating profit hit. If it had healthy
supplies of the truck, its North America operating margin would
have totaled 10%, an indication of what its market share could be
later in the year, he said.
Ford will also roll out this year a new Edge SUV and refreshed
version of its popular Explorer SUV, helping it to cash in on the
boom in U.S. demand for trucks and SUVs.
Mr. Fields, a Ford veteran who took the top job in July, is
targeting 2015 as a breakthrough year for profitability, after last
year's results were hit hard by sales declines in key regions and
higher warranty and recall costs.
The company raised its guidance for North America, increasing
operating margins by a half a percentage point to 8.5% and 9.5%.
Ford earned $1.3 billion in pretax profits in North America last
quarter, down 11% from a year earlier, but better than Wall Street
expectations for the region.
Overall, Ford's global sales were about flat for the quarter,
even though its market share grew slightly--by less than a
percentage point--to 7% world-wide.
South America and Europe continue to be a drag on the company.
While its loss in South America narrowed last quarter, totaling
down $189 million, compared with $510 million a year ago, the
company dialed back its guidance for the region, saying its results
would just improve instead of "substantially" improve.
Falling new car demand in the region, along with currency
volatility have hit Ford hard, causing it to rack up $1.2 billion
in losses in South America last year. In a drastic step, Ford
removed Venezuela from its consolidated operations last year,
taking a $700 million charge.
Russia was also a drag on Ford's European operations, helping to
drive a $185 loss during the quarter, compared with a loss of $194
million a year earlier. Continued losses in Europe come as the
Western European auto industry is showing consistent growth after a
decade of malaise, helping some of Ford's competitors report blank
ink.
Ford earlier this month took controlling interest in its joint
venture there with Sollers OJSC and announcing plans to invest more
in Russia. GM started making plans to abandon the market in the
first quarter due to regulatory pressures and economic turmoil;
Ford says its decision to double down reflects long-term confidence
in the emerging market.
Ford made money in Asia Pacific amid vehicle-sales growth and
progress in China, an encouraging trend after years of running
behind in the world's biggest region. Earlier this month, Ford
revealed plans to spend about $1 billion to buy a factory in China
from struggling car maker Hafei, even as sales growth in the
broader auto market is slowing modestly.
Write to Christina Rogers at christina.rogers@wsj.com
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