Ford Forecasts Stronger 2015

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Auto Maker Sees Revenue, Market Share Rising After Challenging 2014

Wall Street Journal / January 29, 2015

Ford Motor Co. pledged to put weak earnings behind it with a strong 2015 forecast, but persistent losses in Europe and emerging markets show the challenge of kicking results into overdrive.

On Thursday, the No. 2 U.S. auto maker reported a sharp drop in fourth-quarter net profit, due largely to accounting moves. But margins also eroded as revenue slipped 4.5% and costs piled up for product launches in its North American home market.

Chief Financial Officer Bob Shanks referred to 2014 as a “solid, but challenging” period. An economic downturn in Russia, weakness in South America and costs from a record pace of U.S. recalls hit Ford hard, forcing the auto maker to miss its original full-year profit outlook.

Still, the Dearborn, Mich., auto maker topped analysts’ forecasts for operating profit in the quarter ended Dec. 31, posting profit before special items of $1 billion, or 26 cents a share, compared with $1.3 billion, or 32 cents a year earlier.

Net profit slipped to $52 million during the period, down significantly from the $3 billion recorded a year earlier. Ford had a sizable one-time tax benefit that bumped up results in the fourth quarter of 2013.

Profit in the latest quarter was hit by lower sales volumes, a $700 million charge for removing Venezuela from its consolidated operations and restructuring costs in Europe and Australia. Revenue declined even as industry sales sizzled in the period.

The pressure is on to deliver better results this year. The first six months of Chief Executive Officer Mark Fields ’s tenure were marked by sales declines in key products and regions. Mr. Fields also has called 2015 a “breakthrough year.”

Russia, in particular, poses a big problem this year for Ford, which has invested heavily in the region over the past five years.

Weakening conditions there caused Ford to lower its expectations in Europe overall. Similarly, General Motors Co. , which reports earnings next week, said on Thursday it was temporarily shuttering a plant in Russia that makes its Opel brand vehicles.

“We need to take more action in Russia,” Mr. Shanks said in an interview. Ford, which runs a joint venture with Russia’s Sollers JSC, has laid off hundreds of workers and cut production as the nation’s weak economy and falling currency hurt demand. Mr. Shanks didn’t say what actions Ford would consider, but ruled out removing the business from consolidated operations.

Ford’s global revenue declined $1.7 billion in the quarter to $35.9 billion because of lower vehicle sales around the globe, including fewer deliveries in a North American market that is at a near-decade high. Ford has forecast a big turnaround this year with new vehicles entering the market late in 2014 that promise to increase sales and revenue.

The auto maker suffered a slowdown late in the year due to a critical production changeover for its top-seller, the F-150 pickup truck.

Adjusted for one-time costs, including the Venezuelan effort and costs related to cutting jobs in Asia and Europe, Ford earned 26 cents a share, better than the 23 cents expected by analysts polled by Thomson Reuters.

For the year, Ford posted a $6.3 billion operating profit and kept its forecast for 2015 pretax operating profits at between $8.5 billion and $9.5 billion.

In North America, traditionally Ford’s strongest region, quarterly pretax profits fell to $1.55 billion from $1.8 billion the previous year. Ford didn’t reap much of the benefit of having its Dearborn, Mich., truck plant back online after shutting it for several weeks in the third quarter as production was still slow. Car makers book revenue when cars are shipped to dealers, not when they are sold to consumers.

Ford’s quarterly losses in Europe shrank to $443 million from $529 million a year earlier. Ford finished its restructuring last year with the closing of its Genk, Belgium, plant. Overall, Ford reduced capacity in the region by 18% and closed three plants, but it isn’t projecting profits in the region this year.

Losses in its South American business expanded to $187 million from $126 million. Asia-Pacific profits fell to $95 million from $109 million on higher warranty costs and exchange rates. Deliveries in the region rose only slightly. Profits at its finance arm, Ford Motor Credit, rose to $408 million from $355 million a year ago.

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Ford's 2014 profit fell 56 percent amid new-product blitz

'Strong growth' predicted for '15 despite darker outlook for Europe

Automotive News / January 29, 2015

Ford Motor Co. posted a drop in fourth-quarter profit and said earnings fell 56 percent in 2014 as it introduced 24 vehicles worldwide while U.S. market share declined.

Annual net income fell to $3.2 billion from $7.2 billion in 2013. Ford earned $52 million in the fourth quarter, marking its 22nd consecutive profitable quarter, but that was down from $3 billion in the same period a year earlier, when results were boosted by favorable tax benefits.

“2014 was a solid yet challenging year for Ford -- with our investments and a record number of new products launched around the world positioning us for strong growth this year and beyond,” CEO Mark Fields said in a statement. “The entire Ford team remains focused on our three priorities of accelerating our One Ford plan, delivering product excellence and driving innovation in every part of the business.”

Annual revenue was down 2 percent, to $144.1 billion, as Ford booked fewer trucks and other vehicles coming off the assembly line.

Ford's results still beat most Wall Street expectations. Ford shares rose 2.7 percent to $14.85 as the overall markets rallied today.

The fourth-quarter results included a previously disclosed $800 million pretax charge related to currency devaluation in Venezuela. Excluding that and other special items, including costs related to job cuts in Europe and Asia Pacific, Ford earned a quarterly operating profit of $1.1 billion, 15 percent less than a year ago.

In North America, Ford earned $6.9 billion last year, 22 percent less than it did in 2013. As a result, about 50,000 hourly UAW members at Ford will receive profit-sharing checks averaging $6,900.

Last year’s profit-sharing checks averaged $8,800, a record. The payouts, to be made in March, will total about $345 million.

2015 outlook

As production and sales of the vehicles introduced in 2014 ramp up, Ford said it expects to earn a 2015 pretax profit of $8.5 billion to $9.5 billion, which matches the guidance it provided in September.

Fields said Ford expects to produce the majority of its 2015 profits in the second half of the year, as inventories of the recently introduced vehicles rise, whereas historically the first half tends to be more profitable.

Ford CFO Bob Shanks said the company’s 2015 operating margin would improve from last year’s 3.9 percent, which was a drop from the 5.4 percent it managed in 2013.

“I think we’ll do much better than that in 2015,” Shanks told reporters at Ford headquarters this morning. “We do expect to see a substantial increase in our wholesales this year. You’re going to see a pretty big step up … and our share improve as well. You’re going to see a lot of strong growth numbers from Ford in 2015.”

F-150 'flying off lots'

Ford has said dealers will have a full supply of the redesigned F-150 around April. Ford started shipping F-150s from its Dearborn Truck Plant in November, and its truck plant in Kansas City, Mo., which was down for a month to retool, reopened this week.

Shanks said the F-150 launch is going “extremely well,” with the Dearborn plant now up to full speed.

“Vehicles are literally flying off the lots,” he said. “Mix is extremely rich. Pricing is very, very healthy.”

Ford sales slipped 1 percent in the U.S. last year, with its share falling to 14.9 percent from 15.9 percent at the end of 2013. Executives have attributed the decline to the F-150 production changeover, though other nameplates also underperformed their segments.

The full-year results, equal to $1.16 a share, were slightly above Wall Street’s expectation of $1.11.

The fourth quarter was Ford’s fifth consecutive quarter of positive automotive operating cash flow. Its Asia Pacific region achieved a record $589 million operating profit for the year.

European outlook

In Europe, Ford’s losses narrowed to $443 million in the fourth quarter and $1.1 billion on the year.

Ford lowered its guidance for Europe, saying it expects to do better than last year but worse than the $250 million loss it previously projected.

Ford Motor Credit Co. had its best year since 2011, earning $1.9 billion in 2014. That was 6 percent better than a year ago, driven by increases in both lending and leasing.

Among the company’s biggest problems is Venezuela, where it has changed its accounting methods to reflect the difficulty of operating its business there.

“We don’t see anything changing going forward,” Shanks said. “We have difficulty getting access to hard currency.”

Including the accounting charge, Ford lost $1.2 billion in South America last year, compared to a $33 million loss there in 2013.

That contrasts with the growth Ford is experiencing in Asia Pacific, where the company’s joint ventures in China produced a $1.3 billion profit.

Ford market share in China rose from 4.1 percent in 2013 to 4.5 percent in 2014.