Ford's Stock Takes Another Hit on Revised Guidance
July 26 2017 - 11:19AM
Dow Jones News
By Christina Rogers
Ford Motor Co.'s net income rose slightly in the second quarter
due to a better-than-expected tax rate and healthy financing arm
profits but Wall Street reacted negatively to revised full-year
guidance, sending the stock down roughly 2.5% in early morning
trading.
The lower stock performance illustrates the challenges facing
new Chief Executive Jim Hackett, who is trying to address concerns
about the company's ability to weather softer conditions in the
U.S. market.
The Dearborn, Mich., auto maker on Wednesday said the lower tax
rate, strong pricing on pickup trucks and SUVs, and strengthening
conditions for its Ford Credit lending arm led to a $2 billion net
profit for the second quarter, a 4% improvement over the same
period a year ago.
However, the company issued new 2017 guidance, forecasting
full-year adjusted earnings per share between $1.65 and $1.85 with
the mid-range roughly in line with last year's results. That
equates to $7.8 billion to $8.7 billion on pretax operating basis,
below the previous outlook of $9 billion for the full year.
Ford's stock was trading at just under $11 a share in early
morning trading, down 2.5% from Tuesday's close in a market that
was up over all.
"We expect a negative reaction to the implicit reduction in
pretax profit," said J.P. Morgan analyst Ryan Brinkman. "This also
may amount to a bit of 'clearing the decks' following the recent
change in leadership."
Mr. Hackett was hired in May after the board ousted Mark Fields,
who had delivered a string of healthy profits over a three-year
tenure as CEO but failed to deliver a clear vision of how the
company will confront a slate of changes threatening to reshape the
auto industry. Ford's stock price also struggled under Mr. Fields,
and analysts expressed concern about a weakening profit
outlook.
Mr. Hackett is spending the first 100 days of his tenure
reviewing all corners of the auto maker's business in an effort to
craft a comprehensive turnaround plan that will help steer the
company through an expected downturn in the U.S. auto market while
helping speed development of new technologies, such as electric
cars and autonomous vehicles.
"No one here is satisfied," Mr. Hackett said on the company's
earnings call. "We know we have a lot of work to do."
Ford's earnings report somewhat mirrored results delivered by
General Motors Co. a day earlier, with results being almost
entirely driven by core North American performance.
While overall demand is waning in the U.S. market, buyers
continue to snap up pricey pickup trucks and sport utilities amid
lower gasoline prices, a favorable development for Detroit auto
makers that have a lock on the big pickup market and make a
disproportionate amount of profit from vehicles like the F-150 or
Explorer.
Ford's second-quarter adjusted earnings were 56 cents per share,
beating analysts' estimates of 43 cents a share. Chief Financial
Officer Bob Shanks attributed the beat to a lower projected tax
rate due to changes in the way Ford accounts for losses incurred by
its overseas operations.
Operating income fell 16% to $2.5 billion in the second quarter
due to higher commodity costs, unfavorable exchange rates in China
and Europe and charges related to a pullback in small-car
production, including the cancellation of a new assembly plant in
Mexico earlier this year.
Revenue was $39.9 billion for the April-to-June period versus
$39.5 billion a year ago, despite weaker global volumes, including
a 3% decline in new-car sales in the U.S. in the second-quarter and
lower deliveries in Europe due to the changeover to a new Fiesta
small car.
North American operating profits were $2.2 billion, down $500
million from the previous year. Margins in the region also slipped
in the second quarter to 9%, down from 11.3% in the same year-ago
period.
Ford Credit had its best quarter since 2011 with operating
profit up 55% to $619 million, lifted by better-than-expected
values on used cars sold at auction and healthier consumer credit
conditions.
In Europe, Ford posted a pretax profit of $88 million compared
with $467 million a year ago, with earnings dented by lower sales
and an unfavorable exchange rate due to Brexit.
In Asia Pacific, Ford recorded a $143 million operating profit,
up from a loss of $8 million in the same quarter of 2016, as sales
and market share in China improved during the quarter.
Ford's operating loss in South America continued to narrow, with
the auto maker reporting $185 million in red ink for the just-ended
quarter, compared with $265 million in the same year-ago
period.
Write to Christina Rogers at christina.rogers@wsj.com
(END) Dow Jones Newswires
July 26, 2017 11:04 ET (15:04 GMT)
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