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% in midday 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, indicating weaker
pretax profits than originally forecast.
Ford is now projecting adjusted earnings per share between $1.65
and $1.85, equating to $7.8 billion to $8.7 billion on a pretax
operating basis. That's below Ford's previous outlook of $9 billion
for full-year 2017 and far lower than the $10.4 billion earned last
year.
"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.
A former office-furniture executive who until recently ran
Ford's smart mobility unit, Mr. Hackett is spending his first 100
days on the job 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 the U.S. auto industry's next
downturn and speed development of new technologies, such as
electric cars and autonomous vehicles. Company executives are
expected to release details of the plan this fall.
Ford has already embarked on an aggressive cost-cutting strategy
that should generate roughly $3 billion in savings this year. The
efforts come amid a broader pullback in U.S. consumer demand as the
U.S. auto industry's seven-year growth streak comes to an end,
forcing car makers to respond with deeper showroom discounts and
factory production cuts.
Mr. Hackett described the second-quarter performance as "solid"
but added that "no one here is satisfied."
"We know we have a lot of work to do," he told analysts and
reporters on the company's earning call Wednesday.
Ford's earnings report somewhat mirrored results delivered by
General Motors Co. a day earlier, with results being almost
entirely driven by its core North American operations. The
company's performance outside the U.S. was just shy of break even
in the second quarter with modest profits in Europe and Asia
offsetting continued red ink in South America, the Middle East and
Africa.
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,
exceeding analysts' estimate of 43 a share. Chief Financial Officer
Bob Shanks largely attributed the beat to a lowering of the
company's projected tax rate from 30% to 10% for the quarter.
Ford, anticipating revisions in the U.S. corporate tax code,
changed the way it accounts for losses incurred by its overseas
businesses, generating credits that will cut its full-year tax rate
in half to 15%--a benefit for 2017 that won't re-occur in years to
follow, Mr. Shanks said.
Pretax operating income fell 16% in the second quarter due to
higher commodity costs, an unfavorable exchange-rate impact in
China and Europe and one-time charges related to a pullback in
small-car production, including the cancellation earlier this year
of an assembly plant in Mexico.
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.
Ford Credit stood out as a bright spot during the quarter. The
financing arm reported 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.
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 and well below the 12.2% reported by General Motors Co. on
Tuesday for its North American operations.
Ford's European operations 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 the U.K.'s
withdrawal from the European Union.
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 following a rocky start to the
year.
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 15:32 ET (19:32 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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