Ford Q2 Net Income Falls 48%, Lowers 2018 Profit Forecast

[rmc523]

http://www.autonews.com/article/20180725/OEM01/180729816/ford-lowers-2018-profit-forecast-as-q2-net-falls-48

 

 

 

Ford Lowers 2018 Profit Forecast as Q2 Net Falls 48%

Michael Martinez | Autonews
UPDATED: 7/25/18 5:06 pm ET - adds details

DETROIT -- Ford Motor Co. lowered its full-year forecast due to challenges overseas and said CEO Jim Hackett's global restructuring efforts could result in charges totaling $11 billion over the next three to five years.

CFO Bob Shanks said the weaker guidance was not related to the Trump administration's tariffs on steel and aluminum, which General Motors cited earlier in the day when cutting its own outlook. Ford did, however, take a tariff hit in the quarter and expects a bigger impact later this year.

Ford said trouble in Europe and Asia will trim adjusted earnings to $1.30-$1.50 a share in 2018, from prior guidance of $1.45-$1.70 per share. In a statement, the company said it expects a loss in Europe due to higher costs, and a “significant loss” in Asia due to lower pricing and an unfavorable mix in China.

In the second quarter, Ford's net income fell 48 percent to $1.1 billion. Executives blamed the drop on challenges in China and a supplier fire that crippled U.S. production of highly profitable F-series pickups for more than a week in May.

Revenue fell 2 percent to $38.9 billion compared with the second quarter of 2017. Ford's earnings before interest and taxes dropped 40 percent to $1.7 billion.

"It was obviously a very tough quarter for us," Shanks told reporters.

Ford's North American profit dropped 25 percent to $1.8 billion. It attributed the decline to a fire at a Michigan magnesium plant that made parts for the F series and a settlement over faulty Takata airbags. Ford's earnings fell in each of its global regions other than the one that comprises Africa and the Middle East.

Shanks said Ford took a $145 million hit in the quarter related to tariffs and expects that Ford will lose $500 million-$600 million on tariff-related charges this year. But he said the issue was not affecting earnings guidance because the company will be able to absorb the costs in North America.

Ford shares sank earlier Wednesday to their lowest level in nearly six years before its earnings were reported, but recovered most of their losses and closed the day off less than 1 percent at $10.52. In after hours trading, the shares fell 2.4 percent as of 4:31 pm ET.

Restructuring charges

Shanks declined to say if the $11 billion in restructuring charges would result in Ford pulling out of any global markets but suggested that, by offering a concrete number, Ford already had a sense of what exactly it planned to do. A Morgan Stanley analyst report in March estimated that Ford would need to take charges of $4 billion to $12 billion to achieve the kind of cost cuts Hackett is targeting.

Ford said it has postponed its upcoming investor day, scheduled for Sept. 26, and will set a new date “when more specifics can be shared on global redesign and restructuring.”

Ford’s profit margin for the quarter was 2.7 percent, down from 5.1 percent a year earlier. Its North American margin declined to 7.4 percent from 9.5 percent in the second quarter of 2017.

The company lost $394 million in its Asia Pacific region, versus a $167 million profit a year earlier. Its European region swung to a loss of $73 million, and South American losses grew 1 percent to $178 million. It made $49 million in the Middle East & Africa after losing the same amount a year earlier.

Ford said its mobility unit lost $181 million in the second quarter, nearly triple its outflow a year ago. The unit is in a stage with heavy investment and little revenue to offset that.

Ford Motor Credit made $645 million, a 4.2 percent increase.

Ford’s net income equaled 27 cents per share, 4 cents less than the consensus estimate on Wall Street of 31 cents.

[bzcat]

The investor day got postponed with no new date... not good news.

 

During the last quarter conference call, Hackett and Farley promised that they will have more info on the future of car business in North America on the investor day in September - specifically, they said they will have more info on EV (MACH1) and the future of car business (what's the plan for Fusion and Focus Active). My opinion is that the cancellation of investor day points to Ford not having an actual plan...

Edited July 26, 2018 by bzcat

[jpd80]

I think Jim Hackett has just realized the job ahead of him is not just dumpimg billions into

AV and mobility, it's also about keeping Ford's image and the products that Ford delivers

fresh and exciting for buyers to consider. Outside of the US, Ford is getting killed by its

competitors because its products are now so stale, over priced and just not competitive.

 

All the blather is coming to a head, I don't think Hackett's plans are going to work with

reductions of income coming out of Ford NA, all of his projections are now garbage.

There is no way he can execute the turnaround in income and profit levels expected,

especially in ROW operations.

 

I suspect that the reason the Investors day was postponed is because none of their

projections are 1) accurate or 2) even close to on plan with objectives. and until

Mr. Hackett has the truth and a better plan, there's no point saying anything.

Edited July 26, 2018 by jpd80

[Harley Lover]

At least Shanks didn't make any more (apparent) product announcements. Small steps...

[Harley Lover]

Hackett has been in the chair for 14 months. How many plans have there been? What is the current plan? Does anyone really know?

[snooter]

Pretty much conceded cars to honda and yota..they seem scared to try and compete ranger with the taco as well..right now they have no balls and hatchet seems to have no clue about the car biz...yea ford deserves that $8 stock price or less

[snooter]

Pretty much conceded cars to honda and yota..they seem scared to try and compete ranger with the taco as well..right now they have no balls and hatchet seems to have no clue about the car biz...yea ford deserves that $8 stock price or less

Note: they need bronco to be right more than ever now...

[coupe3w]

Not everyone wants or needs a truck or a SUV/CUV. With trucks priced so high it takes 10 years to pay them off. Putting all your eggs in one basket doesn't work. Why does Ford think this strategy will work?

[Assimilator]

Not everyone wants or needs a truck or a SUV/CUV. With trucks priced so high it takes 10 years to pay them off. Putting all your eggs in one basket doesn't work. Why does Ford think this strategy will work?

 

 

Ford has utilities in the same price ranges as most of their cars however, and yet more utilities and trucks on the way.

 

I still think Ford is heading in the right direction, but it's going to be a tough road getting there. I have a much better understanding of the US so I'm not exactly sure how they are going to turn their business around in the rest of the world. They may need to make big changes and maybe Hackett isn't making them big enough, but you can't say he isn't doing anything about it. But I get a sense that things are very fluid and uncertain and I'm sure the current trade uncertainty makes it impossible for them to calculate the risk on big investments.

Edited July 27, 2018 by Assimilator

[akirby]

Not everyone wants or needs a truck or a SUV/CUV. With trucks priced so high it takes 10 years to pay them off. Putting all your eggs in one basket doesn't work. Why does Ford think this strategy will work?

 

They still have the new Focus which will be available on the new platform. They can easily switch utility production to Focus if necessary. Probably Mondeo as well although the platform there is still up in the air - could be C2 or CD6. So they're not putting all their eggs in one basket. If they were killing Focus and Fusion/Mondeo completely worldwide and stopping development of platforms that could support cars then you'd be right, but they're not.

 

But when you're selling 78% trucks, vans and utilities it's hard to argue that Ford doesn't need to expand that and take advantage of that market now. Most would argue they've already missed out with a less than perfect and late to market Ecosport, an aging Escape and the lack of something in between. Not to mention Ranger and Bronco.

 

You also have to remember that today's utilities like Escape and Edge (and trucks) drive more like cars and get car like MPG now so it's no longer a compromise.

[jcartwright99]

Not everyone wants or needs a truck or a SUV/CUV. With trucks priced so high it takes 10 years to pay them off. Putting all your eggs in one basket doesn't work. Why does Ford think this strategy will work?

 

While true, the majority of people buy trucks and SUV/CUV's. If you haven't noticed the car market is shrinking, so Ford is being proactive. I also think that it's a bit overblown that they won't make cars. The Focus Active will be a slightly lifted car. The Fusion will turn into a Suburu fighting station wagon (just don't call it a wagon).

 

I prefer cars but I realize that I am in the minority.

Edited July 27, 2018 by jcartwright99

[rmc523]

 

While true, the majority of people buy trucks and SUV/CUV's. If you haven't noticed the car market is shrinking, so Ford is being proactive. I also think that it's a bit overblown that they won't make cars. The Focus Active will be a slightly lifted car. The Fusion will turn into a Suburu fighting station wagon (just don't call it a wagon).

 

I prefer cars but I realize that I am in the minority.

 

Yeah, the "dropping cars" was just a marketing move to try to impress Wall Street ("hey look how bold we're being), when in reality, there will still be a whole lineup of "cars" branded as crossovers because they sit an inch or two higher.

[coupe3w]

Why is Ford not making inroads in China? Late to market, wrong products, or something else?

[jcartwright99]

Why is Ford not making inroads in China? Late to market, wrong products, or something else?

 

Old products from what I've read.

[fuzzymoomoo]

Why is Ford not making inroads in China? Late to market, wrong products, or something else?

Yeah its old products. Chinese buyers have shown to be WAY trendier than Americans.

[Fordowner]

What concerns me is that 11 billion in write offs they need to take in the coming years. What is that for? Isn't one reason to let the car lines fade out to control costs and allocate capital appropriately? And why did that $11 Mil number just come up now?

I knew China was bad, The F-150 fire would cost money, and the tariffs would do a number on our margins. Didn't realize Europe was going south. Thought the 11 billion in restructuring charges with little explanation and cancellation of the September Investor Day are the real kick in the gut that makes me question what Hackett is up to.

Edited July 27, 2018 by Fordowner

[Assimilator]

Europe suffers from some similar problems to the US, Ford is poorly positioned on utilities with an aging fleet.

 

China is by far their biggest point of failure and this falls squarely on Mark Fields. The leadership didn't understand the market, they were not adaptable, and they were moving far too slowly. They have been outmaneuvered and it's going to be a huge task to get up to speed and to completely change their Chinese approach to product development. They are promising a massive product onslaught but I've never really known Ford to operate on 'burst' mode like GM so we'll see what that means exactly.

 

If this quarter doesn't convince Ford to finally pull the plug on SA, I don't know what will.

Edited July 27, 2018 by Assimilator

[tbone]

The leadership didn't understand the market, they were not adaptable, and they were moving far too slowly.

This seems to be an ongoing problem for Ford. They have the Truck market down but dont have a clear handle on much else. The Fusion is a good example of this, where they built a stellar vehicle in 2013 for mid-sized car market and did not capitalize on the inroads it was making. Their inaction on the Fusion was a total shame, regardless of the current state of the car market.

 

They need to make better decisions sooner. We know what their capable of, but getting it done is another story. It is quite frustrating to watch.

[mackinaw]

Europe suffers from some similar problems to the US, Ford is poorly positioned on utilities with an aging fleet.

Yes and no. From Automotive News:

 

CFO Bob Shanks said the bulk of Ford’s European vehicle range was unprofitable. “The low-performing part of our portfolio represents a majority of our volume, revenue and capital deployed in the region,” he said. This consisted “principally of cars and multi-activity vehicles [minivans] such as C-Max,” he said. Ford’s Transit van, Kuga crossover and Ranger pickup and “selected imports” are selling profitably in Europe, Shanks said, without naming the imported vehicles. They are likely to include the Edge midsize crossover and the Mustang sports car. Shanks said the vehicles represented more than 200 percent of Ford’s profits in Europe, despite accounting for less than half of its volume and revenue.

 

Jim Farley, Ford’s head of global markets, said commercial vans are earning 13 percent profit margins for the automaker in Europe. “Clearly we have to redesign Europe, centering the operations on our profitable LCV business,” he said. SUVs were also part of that plan. Capital allocation plans now align with the SUV and the LCV business opportunities, Farley said."

[akirby]

I think Ford made a mistake in the early part of this decade when they decided to consolidate onto Euro platforms for B, C and C/D vehicles. They spent a lot of money on Fiesta, Focus, Fusion, Escape and Edge. They spent a lot less on Ecosport but it was also late to the party. Escape and Focus aren't the right size. Edge isn't that much better than the old platform. And almost all have had numerous quality issues at launch and recently. I think in hindsight it would have been better to keep them on their old platforms with new tophats before moving to the new modular architecture.

 

It's also pretty amazing how many new engines and transmissions Ford has debuted just since 2011.

 

3.5LEB - at least 3 versions, 2 drive configurations

3.0EB

2.7LEB - 2 versions, 2 drive configurations

2.3LEB - 2 versions, 2 drive configurations

2.0LEB - 2 versions

1.6LEB

1.5LEB 3 cylinder

1.5LEB 4 cylinder

1.0LEB

3.3L

5.0L Coyote V8

5.2L FPC V8

6.7L Powerstroke Diesel

3.0L Diesel

 

8 speed FWD tranny

10 speed RWD tranny

 

I'm sure I missed some.

 

How does this stack up to Toyota? 1 or 2 new engines and a new tranny? GM is probably closest but I don't think they have anywhere near that many new engines and trannys in that timeframe. This also eats up capital and R&D resources.

[bzcat]

The market was different earlier this decade. The decision to merge product on the generally superior C1 and EUCD platform was the right decision. And I disagree that Ford spent a lot of money on those platform... they were choosen for North America precisely because Ford didn't have to spent a lot money... they were ready to go with only minimal updates required. That was Alan Mularly's entire mission to change how Ford developed platform, powertrain, and architecture locally.

 

The problem is Ford just stopped there and didn't have the next generation of vehicles ready when they became old.

 

The launch problems are supply chain and assembly issue. That would have happened no matter what platform Ford was using. The record holder for the most recalls in the first 12 months of any vehicle is still the original CD2 Escape, which was not related to any European designed platform. And also Mazda or Volvo didn't have the kind of serial recalls with their C1 vehicles.

[SoonerLS]

3.5LEB - at least 3 versions, 2 drive configurations

 

There have been three EB35s in the F-150. There was the Gen 1+ from '11 to '16, Gen 2 from '17 on, and the EB35HO in the Raptor. (I think the switch was in '17.)

Also, there have been two generations of Coyotes in the F-150s.

Technically it debuted in '10, but you missed the 6.2.

[jpd80]

Consider the time line for delivery of the C1 and EUCD/CD4 products to North America.

C1 Focus had been around since 2003, the EUCD Mondeo 2007 and 2008 for Kuga (Escape)

They were already aged vehicles when pressed into service as unifiers, I think the problem was

that Ford didn't really get the subtle differences in vehicle requirements between various markets,

they tried to be "One Ford" with one size fits all. A great strategy for saving money but one that

ultimately require a lot more input form stakeholders at the start of the project.

 

Ford now admitting that most of its common products in Europe make no profit, this is the trap

manufacturers can fall into when the concentrate on market share and try to sell volume products.

The billions now needed to fully revamp the European / ROW showroom is now a huge cost

with doubtful long term ROI. So now Hackett has to decide whether Ford stays in markets

where it's at best break even or worse continuing loss makers.

Edited July 27, 2018 by jpd80

[akirby]

First gen Fusion at Hermosillo was absolutely bulletproof from 05 to 12. Hermosillo was Ford’s top rated assembly plant. You don’t go from that to what they had with the 2013 Fusion because of assembly issues. Suppliers, yes but there are quite a few things in the 2nd gen Fusion that was inferior to the old one from an engineering standpoint.

[Assimilator]

Ford is probably over-spending on Focus and Fiesta while that market is seeing increased price pressure in Europe, somewhat similar to the midsize market in the US. At the same time, Ford's bet on MAV type designs instead of utilities leaves them particularly vulnerable since they have to completely change out that customer and product in the coming years. Those same new utilities are crucial to the US market so I think they'll be in much better shape after this decade but ultimately it depends on how they want to handle their unprofitable volume products.

 

I can't help but envy GM's ability to exit that region, especially now that Ford North America will see much less benefit from it moving forward.

 

Man, Ford has a hill to climb at every turn.

Edited July 27, 2018 by Assimilator