Ford's Margin Outlook Undercuts Strong Year
January 29 2016 - 3:02AM
Dow Jones News
(FROM THE WALL STREET JOURNAL 1/29/16)
By Christina Rogers and Gautham Nagesh
Ford Motor Co. swung to a $1.9 billion fourth quarter net
profit, capping a record year for operating results at the nation's
No. 2 auto maker and prompting its executives to forecast a repeat
or improved performance this year.
But investor concerns about profitability in the company's core
U.S. market plateauing this year sent its shares to their lowest
point in more than three years during the day. The stock retraced
some of its drop and finished down 1% at $11.71, the lowest closing
price since Mark Fields took over as chief executive 18 months
ago.
Ford's fourth-quarter operating profit of 58 cents a share,
compared with 28 cents a share a year earlier, outpaced analyst
expectations. And the company reported a $259 million annual profit
in Europe, its first in four years due to restructuring efforts,
improved market conditions and accounting changes. Its Asia
business is showing life after years of sluggish results as well,
booking a $765 million annual operating profit amid momentum in
China.
Brian Johnson, a Barclays auto analyst, said investors believe
the U.S. new-car market, which reached a record 17.5 million sales
in 2015, has peaked after six years of uninterrupted growth.
"Investors have made up their minds for this cycle . . . we
don't find many institutions who have driven a Ford lately," Mr.
Johnson said.
Ford's 8.2% North American operating margin in the fourth
quarter -- sharply lower than more than 12% margins reported in the
second and third quarter -- missed analysts' expectations. Still,
Ford Chief Financial Officer Bob Shanks forecast equal or better
operating profit in 2016, but said North American profits are
already at "benchmark levels."
Ford, which is looking to boost output, has benefited from low
gasoline prices, which primed demand for sport utilities, and the
company's highly profitable F-150 pickup truck. The auto maker is
preparing to offer a new aluminum version of its "Super Duty"
F-Series this year, but said launch costs will weigh on profit
margins.
AutoNation Inc. Chief Executive Mike Jackson said domestic car
makers, including Ford, should do well this year even if overall
sales flatten.
"America's gone truck crazy," he said, noting more than 70% of
the Detroit Three's U.S. sales are the more profitable light
trucks, compared with less than 50% light trucks for the Japanese
auto makers. "The domestics are in a fantastic position . . . they
are going to move heaven and earth to build more trucks."
Mr. Shanks, however, sought to broaden the view on Ford beyond
its home turf. "This isn't just a North American story," he said.
"We really started to see international markets come forward and
that is a big opportunity."
Global demand, however, hasn't been as bright as North America
lately. Growth slowed last year in China, the world's largest
light-vehicle market, and although optimistic about Ford's
continued growth prospects, Mr. Shanks said economic shifts and
stock market volatility could make for bumps along the way.
Although sales are booming in Europe, the company posted a 1%
operating margin for the year. Brazil and Russia, two key markets
for Ford, are mired in sales slumps. Ford lost $295 million in
South America in the fourth quarter and $832 million during the
year, nearly offsetting the $1 billion combined in Europe and Asia
last year.
Ford's pretax profit for 2015 equaled a record $10.8 billion, a
48% increase from the prior year partially due to a move to
mark-to-market accounting, which changes the way pension losses and
gains are recognized.
Almost all of that profit was generated by Ford's North America
operations, which posted a $2 billion profit in the final three
months of the year and a $9.3 billion profit for the full year.
Revenue for its fourth quarter rose 12% to $40.3 billion, as
sales increased in three of the company's five global regions. Ford
will pay out a record $9,300 per worker in profit-sharing bonuses
in March to factory employees represented by the United Auto
Workers union.
(END) Dow Jones Newswires
January 29, 2016 02:47 ET (07:47 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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