Ford first quarter profits fall 35 percent

DETROIT—Ford’s first-quarter profits sank to $1.6 billion, a 35 percent drop compared to the same period a year ago, as higher costs for warranties, recalls and materials—not to mention falling industry sales in the U.S.—eroded profits.

During the first quarter last year, the Dearborn, Mich., automaker earned a profit of $2.4 billion, its best ever. Ford earned 39 cents per share, which compares favorably with the 36 cents per share Wall Street analysts, on average, expected the automaker to earn.

Bob Shanks, Ford’s chief financial officer, said the company’s performance came in higher than forecasted 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 significantly.

Shanks said costs rose $1.2 billion during the quarter compared with the same period a year ago. Those higher costs were due to a $467 million increase in warranty costs, a $176 million increase in commodity costs, and a $253 million increase in product launch costs. Those higher warranty costs include $300 million in costs for two recalls.

Despite the rough first quarter, Ford said it still expects to earn a pre-tax profit of about $9 billion for the year. That would be $1.4 billion less than the automaker’s results in 2016.

Still, the automaker’s stock price fell 13 cents per share, or 1.2 percent, to close at $11.47. Shanks said he doesn’t expect the higher costs to continue in remaining quarters.

“Basically, the cost increase for the full year has happened in the first quarter,” he said. Ford, along with all automakers, faces a U.S. automotive industry where sales are beginning to stall after a seven-year period of growth and record sales. Now, industry incentives are rising as automakers work to tap the brakes on production and reduce inventory. Ford’s first quarter revenue increased to $39.1 billion compared with $37.7 billion for the same period a year ago. North America continued to be where the automaker made most of its profits, even as those profits fell. Ford’s pre-tax profit in North America was $2 billion for the first three months of the year compared with $3.1 billion last year. In South America, where the economies of Brazil and Venezuela are still in free-fall, Ford reported a pretax loss of $244 million compared with a loss of $232 million for the same period a year ago. In Europe, where the industry continues to recover, Ford reported a pre-tax profit of $176 million compared with $434 million last year.

In Asia, Ford said it earned a pretax profit of $124 million compared with $220 million for the same period last year.