Auto maker earned $2.5 billion as margins jump on higher output, demand for new cars

By Christina Rogers 

Ford Motor Co. reaped the benefits of its costly F-150 truck revamp, doubling income in its first quarter and posting a North American operating margin rivaling those returned by luxury brands.

The Dearborn, Mich., company is among auto makers benefiting from record U.S. light-vehicle demand and low gasoline prices, a trend fueling sales of the most profitable models on dealer lots. As sales of trucks and sport-utility vehicles soar, Ford is receiving a strong profit and sales boost from product redesigns rolled out since Chief Executive Mark Fields took over in mid-2014.

The No. 2 U.S. auto maker by sales also is gaining steam in China, earning more than $400 million last quarter in a country where it historically has lagged far behind General Motors Co. and bigger rivals. That momentum in China, combined with an abrupt reversal of fortunes and return to profit in Europe, is more than offsetting weakness in South America, Russia and other emerging markets.

Ford reported profit of $2.5 billion, or 61 cents a share, up from $1.2 billion, or 29 cents a share, in the first quarter of 2015. That year earlier quarter was hurt by short supplies of the latest F-150 truck as production of the aluminum-bodied vehicle was still gearing up. Last quarter, the company was able to flood the U.S. market with that high-margin truck.

In North America, Ford posted a record 12.9% operating margin for the three months ended March 31, far outpacing GM's 8.7% and the 7.2% reported by Fiat Chrysler Automobiles NV, both for the same quarter.

The strong profit follows a quarter when Ford relied heavily on fleet sales to support market-share growth in the U.S. Typically considered to be less profitable than retail sales, Ford's reliance on fleet business had been a source of concern for analysts.

On an operating basis, the company earned $3.8 billion or 68 cents a share, and the margin in its global automotive business nearly hit 10%. While far less than the global margin for some Japanese auto makers who traditionally benefited from currency translation, Ford's result is considered strong by Detroit's standards.

Its results handily beat analyst expectations of 48 cents a share and could cheer investors who have been concerned that Ford's profitability has peaked as growth in the U.S. appears to be cooling. Its shares rose 3.4% to $14.12 in morning trading in New York.

Ford's revenue increased 11% to $37.7 billion, from $33.9 billion in the same period a year ago.

"You're starting to see a better balance of profitability," finance chief Bob Shanks said on Thursday, citing improving results in Asia and Europe. He said the company has an opportunity for further profit growth in the U.S.

As far as the belief that the best days are behind conventional auto makers after a half-decade of strong earnings, Mr. Shanks said, "we're proving that to be a misconception," he said. There is no sign that U.S. light-vehicle demand is headed for a pothole, he said. He disputed suggestions that the U.S. economy could be headed for a mild recession.

The company's launch of a new Super Duty F-Series truck is coming in the third-quarter. A heavier-duty version of its pickup truck line, Mr. Shanks said, it is the first major overhaul in 19 years and it should help lift earnings in the back half of this year.

Robust demand for Ford's pricier trucks, including the F-150 pickup, in the U.S. continued to drive its operating profits in North America, which nearly doubled to a record $3.1 billion in the first quarter versus a year ago. Ford's U.S. sales grew 8.4% in the first quarter.

Ford posted its best quarter in Europe since 2008, swinging to a $434 million pre-tax profit from a $42 million loss in the same period in 2015.

Profit in Asia Pacific doubled to $220 million versus $105 million a year ago amid growing profitability in China. Ford's equity income from its Chinese joint ventures was up 23% to $443 million in the just-ended quarter.

In South America, its operating loss widen to $256 million on spreading economic malaise in the region.

Write to Christina Rogers at christina.rogers@wsj.com

Corrections & Amplifications: Ford's North American operating margin was 12.9% last quarter. An earlier version of this article incorrectly stated it was 12%. (April 28)

 

(END) Dow Jones Newswires

April 29, 2016 02:48 ET (06:48 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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