Ford sees profit drop as sales hit slow lane
USED- CAR GLUT FROM RETURNING LEASES HURTS FINANCIAL-SERVICES UNIT
Ford Motor Co. said its profit may fall by half in the first quarter, a bigger drop than analysts predicted, as the automaker scales back production amid a declining U. S. market and deals with rising costs.
First- quarter adjusted earnings per share may be 30 to 35 cents, chief financial officer Bob Shanks said during an investor call Thursday. The projection trailed the 47-cent average estimate of analysts surveyed by Bloomberg and compares with 68 cents a year earlier.
The projections add clarity to what Ford has been saying for months: That profit will slump in 2017 as it invests in autonomous and electric vehicles, and as a used- car glut hurts its financial- services unit. Fullyear pretax profit will slip to about US$9 billion from last year’s US$ 10.4 billion, with most of the drop-off happening this quarter, Shanks said in a phone interview.
“From this point forward the comparisons will be more in line with what we saw last year,” Shanks said.
Ford’s guidance is the latest distress signal sent by automakers struggling to reinvent themselves for an autonomous and electrified age. BMW AG said earlier this month that profit margins are shrinking as it pours money into developing self- driving cars. Ford chief executive Mark Fields has said profits will fall this year before rebounding in 2018 as Ford spends big to transform itself to take on interlopers such as Alphabet Inc.’s Waymo and Uber Technologies Inc.
“Everything is on t he table” as Ford re- engineers itself for the future, Shanks told analysts and investors Thursday. “We have not sorted out the answers, but I would say we’ve been work- ing on this now for quite a number of months and I think we’re starting to form some interesting points of view in terms of the direction that we might take.”
The more immediate concern is how Ford can cope with falling U. S. auto sales the first two months of 2017. Ford planned a four-per-cent reduction in North American vehicle production in the first quarter as it anticipated demand would slow following seven years of growth.
Ford shares fell as much as 2.3 per cent Thursday before rebounding. They closed at US$ 11.67, down 0.85 per cent on the day in New York trading. The shares have slid about 3.3 per cent this year.
“This is one of the most significant quarterly misses versus consensus produced by Ford in quite some time,” Adam Jonas, an analyst at Morgan Stanley, wrote in a report Thursday. “The full year pretax target of US$ 9 billion implies some ‘catch up’ in the remainder of the year which may prove challenging given sectorwide deterioration.”
Higher investment and commodity costs, slower sales primarily due to a pullback in deliveries to fleet customers and unfavourable exchange rates are among the factors Ford cited for its earnings slump in the first quarter.
The automaker touched off skittishness among investors late last year by warning that falling used- car prices would impact its financialservices unit this year. Shares of Ford, General Motors Co. and Fiat Chrysler Automobiles NV fell earlier this week after Ally Financial Inc. warned profit growth may slow due in part to an expected five- per- cent decline in used-car prices this year.
Ford has lowered its outlook through 2019 for what it expects used cars to fetch at auctions, due to the glut of models coming off lease over the next few years.