Ford’s profit falls 35% as cost to fix vehicles jumps
Auto sales beginning to stall
Ford’s profits sank 35% during the first quarter to $1.6 billion as higher costs for warranties, recalls and materials eroded the bottom line.
The Dearborn, Mich., automaker also faced a tough comparison to the first three months of last year and is confronting declining sales in U.S. auto market. The company had earned a profit of $2.4 billion in the first quarter of 2016, its highest quarterly profit ever.
On a per-share basis Ford earned 39 cents compared with the 36 cents per share that Wall Street analysts, on average, had expected.
Ford CFO Bob Shanks said the company’s performance came in higher than forecast earlier in the year because sales in North America and two other regions were slightly better than expected. The automaker had already warned investors that its first-quarter profit would fall by more than 50% to about 30 cents to 35 cents per share.
Shanks said costs rose $1.2 billion during the quarter compared with the same period a year earlier. Those higher costs were due to an $467 million increase in warranty costs, a $176 million increase in commodity costs and a $253 million increase in product launch costs. The higher warranty costs included $300 million for two recalls, including certain versions of the Escape sport-utility vehicle and the Fusion sedan.
Despite the first-quarter decline in earnings, Ford said it still expected to earn a pretax profit of about $9 billion for the year. That would be $1.4 billion less than in 2016.
“Basically, the cost increase for the full year has happened in the first quarter,” Shanks said.
Ford, along with all automakers, faces a market in which sales are beginning to stall after a seven-year period of growth that culminated in a record high. Now, industry incentives are rising as automakers try to tap the brakes on production and reduce inventory.
Ford’s first-quarter revenue increased to $39.1 billion from $37.7 billion for the same period a year earlier.
North America continued to be where the automaker made most of its profits. Ford’s pretax profit in North America was $2 billion for the first three months of the year compared with $3.1 billion a year earlier.
In South America, where the economies of Brazil and Venezuela are in free-fall, Ford reported a pre-tax loss of $244 million compared with a loss of $232 million for the same period a year earlier. In Europe, where the industry continues to recover, Ford reported a pre-tax profit of $176 million compared with $434 million in the same period last year. In Asia, Ford said it earned a pretax profit of $124 million compared with $220 million in the 2016 period.