F Ford Motor Company

By Christina Rogers 

Ford Motor Co. raised a caution flag for the red-hot American auto industry, projecting weaker U.S. sales for rest of the year and echoing wider concerns about Brexit's potential impact on its bottom line.

Auto makers have profited from the continuation of low gasoline prices that have spurred demand of light trucks, the highest-margin vehicles on dealer lots. The Dearborn, Mich., auto maker's stable of pickups and sport-utility vehicles is among the freshest available.

Ford, however, was unable to keep up in the second quarter with the blistering pace set the year before, shortly after it launched a redesigned version of its best-selling F-150 truck. A modest slowdown in North American profits combined with weaker sales in China, led to a 9% decline in profit for the quarter.

Ford shares tumbled 8% in 4 p.m. trading on Thursday and its weaker outlook weighed on other car makers' stocks. General Motors Co. slipped 3% and Fiat Chrysler Automobiles NV dropped nearly 5%.

Chief Financial Officer Bob Shanks said the potential for weaker demand in the U.S., higher costs associated with the launch of a heavy-duty truck and the impact of the U.K,'s exit from the European Union could hurt the company's prospects for meeting its 2016 guidance.

Retail light-vehicle sales in the U.S. slowed in the first half, and Mr. Shanks said he takes that as a sign the market has peaked after six consecutive years of growth. Ford also said a projected slowdown in the U.K. could result in a $145 million earnings headwind in the second half.

"We're seeing elevated economic risk for the most part globally, and particularly in what is happening with Brexit," Mr. Shanks said.

GM last week estimated the hit from Brexit could be as high as $400 million this year due to currency exposure and volume concerns.

"We see next year's industry [sales] will be weaker than this year," Mr. Shanks said of the U.S. market. "We don't see growth at least in the near term."

Ford is spending more on sales incentives than last year's levels, and is concerned about the market's reliance on discounts and rebates.

Executives signaled it is prepared to cut factory output and will accelerate a "cost-attack" plan to hit full-year guidance.

Ford projects it will at least equal the $10.8 billion operating profit of 2015. It has earned $6.8 billion in pretax profit through June this year.

It reported a profit of $2 billion in the second quarter, compared with $2.2 billion in the year-ago period. Operating profit equaled 52 cents a share, 8 cents lower than analysts' expectations for 60 cents a share.Revenue rose 6% to $39.5 billion from $37.3 billion a year ago.

"This was surprising," wrote RBC Capital analyst Joseph Spak in a research note, referring to the company's guidance. He said most investors expected strong 2016 results.

Also concerning is the performance for Ford Credit, the company's vehicle financing arm. Operating profit fell 21%, driven by an increase in auto-loan defaults and deepening losses on off-lease cars resold at auction for lower values than projected.

The cautious tone contrasts with that of GM, which lifted its overall full-year guidance last week despite Brexit concerns, and continues to forecast an equal-to-better performance for the U.S. market in 2016 compared with 2015.

Although Ford's North American operation continues to power results, with the company posting an 11.3% operating margin for the region, that was lower than the 12.2% reported in the same period a year ago.

The company had increased production of the priciest versions of the new F-150 last year in a move that helped restock depleted lots ahead of the summer selling season.

Ford earned $2.7 billion in the region during the most recent quarter, down from $2.8 billion a year ago.

Altogether, GM, Ford and Fiat Chrysler earned about $7.7 billion in North America in the April-through-June period, one of the most profitable periods in Detroit's auto-making history and the equivalent of more than $3,000 wholesale profit for each vehicle.

Ford's European operations, a drag on earnings in recent years, were a bright spot in the second quarter. Company pretax profits in the region more than tripled to $467 million as rising demand for new cars and sport-utilities in Western Europe, and improving performance in Russia, helped lift sales.

The company's Asia Pacific region swung to an operating loss of $8 million with profits hurt by weaker sales and a market share slide in China, where Ford recently spent $5 billion to build factories and expand its lineup. Increased competition in small cars from China's domestic car makers contributed to the market share decline, Ford executives said.

In South America, its losses widened to $265 million from $185 million last year.

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

(END) Dow Jones Newswires

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

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