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Ford earnings fall to $1 billion in Q3


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http://www.freep.com/story/money/cars/ford/2016/10/27/ford-earnings-fall-1-billion-q3/92787426/

 

 


Ford's third-quarter profit fell 55% from a year ago to $1 billion, reflecting lower sales in U.S. sales in the last two months, but the results exceeded Wall Street estimates.

The decline was expected because Ford posted its best third-quarter results ever of $2.2 billion a year ago.

On a per share basis, Ford earned 26 cents. Wall Street analysts forecast an average of 20 cents. In 2015's third quarter Ford made 45 cents a share.

 

 

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North America - Volume only down 11%. Revenue only down 8%. Pricing was actually up, incentives down. Not terrible considering 3Q15 was huge.

 

Door latch recall cost almost $600M. Killed operating margin. Without that profit would have been $1.6B. Super Duty launch also contributed.

 

Ford needs to get their quality back on track. Door latches, throttle bodies, water leaks.....not good.

 

It will be interesting to see how GM and Ford fare over the next 3-4 quarters.

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North America - Volume only down 11%. Revenue only down 8%. Pricing was actually up, incentives down. Not terrible considering 3Q15 was huge.

 

Door latch recall cost almost $600M. Killed operating margin. Without that profit would have been $1.6B. Super Duty launch also contributed.

 

Ford needs to get their quality back on track. Door latches, throttle bodies, water leaks.....not good.

 

It will be interesting to see how GM and Ford fare over the next 3-4 quarters.

 

I know we often talk about it, so it doesn't necessarily require further discussion, but despite exceeding market expectations and the stock is still down.

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Gory details here:

 

https://media.ford.com/content/dam/fordmedia/North%20America/US/2016/10/01/3q-16_financial-rls.pdf

 

Note that Ford's Q3 deliveries in NA are down 84k. Compare that to GM's 92k increase in YOY Q3 wholesales, and that's a huge piece of the puzzle.

 

As I've said elsewhere, I believe Ford is smart for cutting production ahead of an anticipated decline in demand. GM, which boosted production, may find itself having to give back a significant amount of its extra Q3 profit recognition in the form of Q4 and Q1 2017 incentives.

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Gory details here:

 

https://media.ford.com/content/dam/fordmedia/North%20America/US/2016/10/01/3q-16_financial-rls.pdf

 

Note that Ford's Q3 deliveries in NA are down 84k. Compare that to GM's 92k increase in YOY Q3 wholesales, and that's a huge piece of the puzzle.

 

As I've said elsewhere, I believe Ford is smart for cutting production ahead of an anticipated decline in demand. GM, which boosted production, may find itself having to give back a significant amount of its extra Q3 profit recognition in the form of Q4 and Q1 2017 incentives.

Also this from Bob Shanks, Ford's CFO,

 

Link to Autonews.com......

Today CFO Bob Shanks told reporters that the earnings decline in North America accounted for the bulk of the corporate drop. Shanks attributed the North American result to:

• The door-latch recall, which will add $640 million in costs this year.

• Launch expenditures and supply disruption for the F series Super Duty trucks.

• “Normalization” of F-150 pickup revenues. Shanks said that in the third quarter of 2015, having recently hit full production, Ford was selling a rich mix of F-150s primarily through retail. With an increase in fleet sales this year, the mix has become less lucrative, he said.

 

“Those three things explain entirely the change in North America, which essentially explains the change in the company,” he said.

That's a lot of head wind

Edited by jpd80
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In addition to what Shanks mentioned, Ford's poor performance last quarter compared to GM is due in large part to GM's stronger product lineup, especially in full size SUVs. http://www.industryweek.com/strategic-planning-execution/ford-fortunes-fade-while-crosstown-rival-gm-posts-record-profit

 

 

Ford Motor Co.’s fortunes are fading while General Motors Co.’s have risen to a quarterly record. To understand why, look no further than big sport utility vehicles that have come roaring back as U.S. gasoline prices plunged.

In the battle of the behemoths, GM is dominating. It controls 49% of the U.S. market for large and luxury SUVs with models like the GMC Yukon and Cadillac Escalade, while Ford has just 13% of that lucrative business, according to Morgan Stanley analyst Adam Jonas. In a product category where profit margins swell to 20 percent or more, that can give GM an annual $2 billion pretax profit edge over Ford, he said.
That helps explain why Ford’s third-quarter net income fell by more than half to $957 million, while GM booked a record $2.8 billion. There were other factors affecting Ford, such as spending big to introduce its aluminum-bodied Super Duty pickup and getting hit with a $600 million tab for a door latch recall. But Ford’s bet a few years back that $100-a-barrel oil would make dinosaurs of big SUVs is not working out.
“The company’s bet on higher-for-longer oil prices may be out of step with the consumer for the next few years,” Jonas wrote in a note Thursday. He rates Ford shares under weight and GM’s over weight.

 

 

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F-Series giveth and taketh away. Ford's fortune is so precariously tied to that one product and that dependency is now at its highest ever. It's great when it's good, but the company goes into crisis when somebody sneezes at the plant.

Edited by BORG
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In addition to what Shanks mentioned, Ford's poor performance last quarter compared to GM is due in large part to GM's stronger product lineup

 

 

 

 

Hogwash. GM is selling into a bubble and Ford is hitting the brakes. Look no further than the incentive spend on the F-Series. Ford idled a plant rather than boost incentives on the F-Series.

 

GM is playing with fire--they're trying to wring every last drop out of this market, and betting against prior experience--that somehow--they'll manage to stop before they start pulling sales ahead and crashing over the next few quarters (viz: "Employee Pricing" hangover from '08, "Keep America Rolling" from '01)

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For anyone who ever wondered why bubbles occur--and why ostensibly rational companies/individuals participate in them, you have front row seats here to what happens when a market participant stops selling/buying into the bubble.

 

It's not a popular decision, and it's not one that appears to make sense to a lot of observers and market participants. To those who don't understand the thinking, specious reasoning is trucked forth--like, for instance, the notion that one company's products are not as popular (or that one participant is not as 'savvy', is too 'risk averse', etc.), rather than observing that a conscious decision is being made to leave money on the table now, in order to chart a more stable course when the bubble bursts.

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Agree with Richard and AKirby that Ford is taking the rationale and smart approach here versus GM, but I think Perez has a point about the profit opportunities lost when Ford ceded the large SUV market to GM. Ford was the market leader here in the late 90s/early 2000s but had to pull back investment when oil hit $150/barrel and the Great Recession hit. Of course, GM continued to invest in large SUVs when they got their $60 Billion check and debt write-off from the Feds … and they are now reaping the very lucrative rewards. At present looks like Ford screwed up here, but, then again, Ford had other obligations that GM did not, e.g., investing in other company-saving products, paying down debt and paying corporate taxes with their OWN money. I’ll give GM some credit – they make good products with other people’s money.

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Exactlty, Ford has decreased incentive spending on F150 by 7.5% while GM has increased

incentive spend on Silverado by 13% - that is a big shift in attitude and meant that GM could

maintain sales aganst a stronger, fresher F150.

 

The downside was the Super Duty changeover which has caused disruption in product mix

as Ford works down the last of its 2016s...

 

GM is playing with Fire here, it could work for them if the market stays flat and doesn't fall,

then they make strong gains - the real risk is carrying a lot of inventory masked by strong

sales. If those sales suddenly fall away, then days supply soars rapidly with larger inventory.

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Ford was the market leader here in the late 90s/early 2000s but had to pull back investment

 

Ford was never the market leader. Tahoe/Yukon/Suburban handily outsold Expedition from the late 90s to today.

 

Ford's best year in 1999 was 235K. GM was 360k combined. And that's not counting Caddy and Lincoln which would make it worse.

 

Not updating Expedition and Navigator has definitely cost Ford sales and profits, no question. But it makes sense in context with the F150 aluminum redo and the uncertain market.

 

GM bet on the market staying strong and it payed off for them up until now. We'll see if that continues through a softening market.

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So now akirby is comparing sales from one brand name (Ford) which produced a single model (Expedition) versus 2 brand names (Chevy and GMC) which produced 3 models (Tahoe, Suburban, Yukon). Please provide data for Expedition (note there was no EL model to compete with Suburban in 1999) versus a single model (like Tahoe) from 1999. Otherwise it's like saying the F series doesn't hold the sales crown for 39 years because it was outsold by Silverado and whatever they call that GMC truck.

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This isn't about a sales crown, it's about who owned the market from a profit perspective. And for that you absolutely have to consider all the different models from each mfr. The fact that Ford didn't have an EL model is part of the reason why they didn't lead that market.

 

And for the record I don't have a problem combining Sierra and Silverado when comparing it to F150.

Edited by akirby
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OK, I thought Ford had a brief market share lead in that segment in the late 90s, but you've got the numbers to show otherwise. Nevertheless Ford took a LOT of share from GM during that time....And compare that to the paltry 41k Ford sold in 2015......

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So I can assume that GM has always owned the "market from a profit perspective" based on the numbers you provided?

 

What is your freaking problem? Go look up the numbers yourself. GM's full sized SUVs handily outsold Ford's full sized SUVs for the last 20 years. It's not even close. I didn't make up the numbers.

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I don't have a problem akirby. You question general statements all the time on this site, I'm questioning your statement. Get over it. You provided details that fit your agenda, as usual, then you get all fucking pissed off when folks disagree or don't have data to back it up. Shoe is on the other foot this time, back up your statement with data.

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Excuse me but I already posted specific data from one year (the best sales year for Expedition). I looked at the other years and they were the same or worse. I'm not in the mood to go copy and paste a bunch of numbers because you don't agree with them. If you think the numbers are wrong then you go copy and paste them and prove me wrong.

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Aw what the hell.

 

Expedition

1997 214,524[84] 1998 225,703 1999[85] 233,125 2000 213,483 2001[86] 178,045 2002[87] 163,454 2003 181,547 2004[88] 159,846 2005 114,137 2006[89] 87,203 2007 90,287 2008[90] 55,123 2009[91] 31,655 2010[92] 37,336 2011[93] 40,499 2012 38,062 2013 38,350[94] 2014 44,632[95] 2015 41,443[96]

 

Tahoe/Yukon

1998[41]

133,235 49,355 182,590 1999 122,213 53,280 175,493 2000[42] 149,834 56,297 206,131 2001 202,319 77,254 279,573 2002[43] 209,767 76,488 286,255 2003 199,065 86,238 285,303 2004[44] 186,161 86,571 272,732 2005 152,307 73,458 225,765 2006[45] 161,491 71,476 232,967 2007 146,259 63,428 209,687 2008[46] 91,578 39,064 130,642 2009[47] 73,254 29,411 102,665 2010[48] 75,675 28,781 104,456 2011[49] 80,527 34,250 114,777 2012 68,904 27,818 96,722 2013[50] 83,502 28,302 111,804 2014 97,726 41,569 139,295 2015[51] 88,342 42,732 131,074

 

 

And that's only Tahoe/Yukon - it doesn't include Suburban/Yukon XL which is another 82k the last 3 years and as high as 225K in 2001.

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There's a whole other factor with this fullsize SUV thing:

 

Manufacturing base.

 

Ford chose to merge fullsize SUV manufacturing with Super Duty truck manufacturing in Louisville.

 

GM still maintains a standalone plant (one in which they have recently invested over a billion dollars) dedicated strictly to producing fullsize SUVs.

 

I don't think GM has made a wise choice by relying so heavily on fullsize SUV sales to prop up their bottom line.

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