F Ford Motor Company

By Christina Rogers 

Ford Motor Co. is planning to boost profit margins faster than initially forecast, saying Wednesday it will slash capital spending in coming years and kill iconic vehicle lines that are unprofitable in an effort to keep pace with Detroit rivals.

The No. 2 U.S. auto maker by sales said it aims to meet an 8% profit-margin goal two years earlier than expected, reflecting Chief Executive Jim Hackett's repeated calls to take more aggressive action on costs. For example, Ford said it is pulling the number of unprofitable small cars it offers in U.S. dealerships, planning eventually to have trucks and SUVs make up 90% of sales volume.

The commitment comes as the company's first-quarter net income rose 9% to $1.7 billion due to a lower corporate tax rate. Operating profit for the first-quarter fell 13% to $2.2 billion as weaker results in North America and losses in Asia Pacific offset improved results from Ford Credit, the company's in-house financing arm.

The U.S. auto market is slumping after nearly a decade of growth, pressuring Ford and others to find additional ways to earn money at a time when big investments are needed for electric cars and driverless-vehicle research. Ford is committed to rolling out battery-powered cars that could compete with Tesla Inc. in 2020 and offering hybrid versions of its most popular sports cars, trucks and SUVs.

Ford is projecting lower profits in 2018, its third consecutive year of earnings declines. It cited progress on identifying areas to cut costs and now expects to slash expenses by $25.5 billion by 2022, up from the $14 billion in cost cuts previously planned.

Executives are also targeting a 10% margin in North America by 2020, a goal that, if achieved, would put it closer to its chief rival General Motors Co. in regional operating profitability.

Ford Chief Financial Officer Bob Shanks said the savings will in part be derived from a $5 billion reduction in capital spending in coming years. He declined to give details on other areas the company plans to make savings but indicated it could include exiting money-losing businesses and pulling capital away from underperforming areas.

"Everything will be on the table," he said. "We can make different investments, we can partner, we can exit products and markets, and we will do that."

Ford was able to keep costs flat in the first-quarter, a sign that its efficiency efforts are starting to bear fruit, Mr. Shanks said. But the bulk of the savings won't come until 2019 and 2020, he said.

Mr. Hackett, who is approaching his first anniversary at Ford's helm, outlined last fall a corporate "fitness" plan that, among other measures, would shift $7 billion in spending away from small cars and sedans and redeploy it to developing more higher-margin trucks and sport-utility vehicles.

Ford said Wednesday it will only sell the Mustang and a crossover version of the compact Focus in the U.S. in the near future. That means the Fusion and Tauras family sedans and the small Fiesta will be eliminated.

Wall Street, however, has shown little enthusiasm for Mr. Hackett's plans so far. Shares closed at $11.11 on Wednesday, little changed from when he took over last May following the firing of former CEO Mark Fields.

Operating profit in North America slipped to $1.9 billion in the first quarter, compared with $2.1 billion in the same period a year. Ford said its North American operating margin was 7.8%.

The company's Ford Smart Mobility division, which includes new transportation ventures, such as its van-shuttle service Chariot, lost $102 million in the latest period.

In China, Ford's profit from its joint-ventures amounted to $138 million, down from $274 million from the same year-ago period, as the auto maker's sales fell 19% last quarter.

Ford reported a 7% increase in revenue to $42 billion and adjusted earnings per share were 43 cents in the quarter, beating the consensus analyst estimate of 41 cents a share.

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

(END) Dow Jones Newswires

April 25, 2018 18:05 ET (22:05 GMT)

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