Ford's Workhorse Trucks Haul In Solid Profit -- WSJ
October 27 2017 - 03:02AM
Dow Jones News
By Mike Colias and John D. Stoll
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (October 27, 2017).
Ford Motor Co. delivered a fresh reminder that -- amid all the
talk about driverless cars and electric vehicles -- Detroit is a
truck town.
The No. 2 U.S. auto maker on Thursday reported a 63%
third-quarter profit increase, a positive sign following a summer
marked by management reshuffling, a renewed cost-cutting drive and
continued malaise for the share price. Those results were fueled by
sales of F-Series trucks, hulking vehicles that likely made up more
than half of the $2 billion in operating profits Ford fetched over
the period.
The average Ford pickup sold for $45,400 even with incentives
factored in during the July through September period. That price
firmly outpaces the $31,200 J.D. Power estimates is the average
transaction price on vehicles sold in the U.S., and was also $2,800
higher than F-Series prices during the same period a year ago.
General Motors Co., which reported earnings Tuesday, also saw
truck pricing increases, raking in $43,220 per Chevy Silverado or
GMC Sierra sold in the third quarter, or nearly $1,300 more than
the same period a year ago.
Ford's results highlight a persistent reality for car executives
eager to showcase investments in future technology. The billions of
dollars being spent on autonomous-vehicle research and making more
affordable electric cars wouldn't be available if it weren't for
brisk truck sales.
The truck momentum has been sparked by the redesign of Ford's
so-called Super Duty lineup, a series of bulky work trucks that can
cost more than $100,000. The auto maker put new versions on sale
last fall, including the F-250, as U.S. buyers soured on
bread-and-butter sedans and compact cars. It marked the first major
redesign of the Super Duty in several years.
Ford also sells the F-150 truck for lighter-duty needs. The
F-Series has been the best-selling vehicle in America since
1977.
Competitors, convinced that low gasoline prices and favorable
economic conditions will remain, are angling to cut in on Ford's
truck dominance. GM and Fiat Chrysler Automobiles NV are prepping
redesigned models for introduction late next year, and those
projects require billions of dollars and thousands of
engineers.
Pickup trucks are a vital source of profit for the Detroit
companies. While the Asian auto makers are formidable rivals in
cars and crossover SUVs, none offer any serious challenge in the
market for big pickups. Profit margins on those trucks -- used to
haul recreational boats and on construction sites across America --
are typically far above 10% and can outpace luxury cars.
Ford needs to protect its turf. North America continues to fuel
Ford's bottom line, contributing nearly all of its automotive
operating profit as other regions net out at about break-even.
Ford's operating margin rose to 8.1% in the third quarter, short of
the 10% margins that Detroit executives expect to squeeze from core
operations but substantially better than the same period a year
ago.
Ford's overall profit increase during the quarter was also
attributed to a lower tax rate and belt-tightening measures. The
No. 2 U.S. auto maker by sales reported net income of $1.6 billion
for the July through September period, and it raised its full-year
earnings guidance.
The brighter outlook is a sign the company is optimistic about
measures it is taking to improve its business, Chief Financial
Officer Bob Shanks said during a round table with reporters. Ford
posted adjusted earnings per share of 43 cents, better than the
average analysts' forecast of 33 cents.
Revenue grew 1% to $36.5 billion, surpassing Wall Street
expectations of $32.8 billion.
Ford cited early progress on new Chief Executive Jim Hackett's
goal of slashing billions of dollars in engineering and
manufacturing costs to improve Ford's "fitness" as it pivots to
longer-term bets on electric cars and autonomous vehicles. Costs
improved by about $700 million in the quarter.
"I would look at this as a first down payment (on) good strong
cost management," Mr. Shanks said.
The company, however, posted a surprise loss in Europe related
to continued fallout from Brexit in the U.K. market, and slimmer
margins in China due to pricing pressure.
Pretax profit in the Asia-Pacific region more than doubled to
$289 million, as cost-cutting lifted the company's profit margin
there to 7.9%, from 4.3%. Ford also got a lift from its finance
arm, where pretax profit edged up 6% to $600 million, despite
analysts' forecast of a decline.
Mr. Shanks said the resale values on a wave of vehicles being
turned in after their leases expire are holding up better than
expected.
Write to Mike Colias at Mike.Colias@wsj.com and John D. Stoll at
john.stoll@wsj.com
(END) Dow Jones Newswires
October 27, 2017 02:47 ET (06:47 GMT)
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