Ford generates $7.4 billion profit for 2015 after strong Q4

A quarterly record for N.A.; Europe back in black

The drop in oil prices, low interest rates and a growing housing market are expected to continue driving U.S. pickup demand and padding Ford's profits. Photo credit: BLOOMBERG
UPDATED: 1/28/16 4:21 pm ET - adds stock close

DETROIT -- Ford Motor Co. today said its net income quintupled in 2015 to $7.4 billion, including $1.9 billion in the fourth quarter, as sales of its high-margin pickups and SUVs surged in a record year for the U.S. auto industry.

The company earned a fourth-quarter record of $2 billion in North America and its first full-year profit in Europe since 2011. UAW workers will get their largest profit-sharing bonuses ever, averaging $9,300.

Before taxes, Ford earned a profit of $10.8 billion, a company record. It reaffirmed its expectation to match or beat that result this year.

“We promised a breakthrough year in 2015, and we delivered,” Ford CEO Mark Fields said in a statement. “In 2016, we will continue to build on our strengths and accelerate our pace of progress even further, while transforming Ford into both an auto and a mobility company and creating value for all of our stakeholders.”

Revenue increased 3.8 percent to $149.6 billion. Automotive operating margins grew 2.2 percentage points to 6.8 percent, which it said is the highest since at least 2001. Ford said margins were the highest since at least the 1990s. 

“Every single financial metric improved on a year-over-year basis,” Ford CFO Bob Shanks told reporters at Ford’s headquarters this morning.

Ford’s fourth-quarter net income swung from a loss of $2.5 billion a year ago, after a restatement related to pension accounting, to a profit of $1.9 billion. Its operating profit for the quarter, excluding special items, was $2.3 billion, equal to 58 cents a share. That compares with Wall Street expectations of 51 cents.

Automotive operating cash flow for the year more than doubled to $7.3 billion. Ford said cash flow in 2016 will be strong but less than in 2015.

Fourth-quarter revenue rose 12 percent to $40.3 billion.

Ford's improved results did not resonate on Wall Street. Ford shares fell 1.2 percent to close at $11.71. The U.S. markets traded higher.

Profit sharing

The full-year North American profit of $9.3 billion means Ford will give its 53,000 hourly workers profit-sharing payouts averaging $9,300, which is $500 more than the previous record. Workers received a $1,500 advance on that bonus last fall as an incentive to approve a new labor contract. The payouts for 2014 averaged $6,900.

In Europe, Ford earned $259 million. It was profitable in all of its global regions except South America.

After North America, Ford’s most profitable region was Asia-Pacific, where it earned a record $765 million. More than half of that -- $444 million -- came from the fourth quarter, due to strong growth in China, Shanks said.

The European profit was an $857 million improvement from a year ago. South America, amid Brazil’s worst recession in more than a century, lost $832 million, but that was smaller than the $1.2 billion loss there in 2014. Ford earned $31 million in the Middle East and Africa, where it lost $20 million a year ago.

"This is not just a North America story, we really started to see the international operations come forward," Shanks said.

Ford Motor Credit generated full-year earnings of $2.1 billion, 13 percent more than a year ago. 

North American record

North America had a record fourth quarter even after $600 million in costs related to the UAW contract ratified in November.

Shanks said Ford expects its North American margin, which was 10.2 percent in 2015, to be at least 9.5 percent this year. Costs related to the upcoming introduction of redesigned Super Duty pickups and investments in other new products explain the potential for a slight decrease, he said.

Though U.S. sales are likely approaching a peak, after breaking the industry record in 2015, Ford does not anticipate a sharp drop anytime in the next few years, Shanks said. The market likely will remain around current levels “through this year and probably into 2018,” he said.

“Low oil prices, low interest rates and the still-growing housing industry bode very, very well for full-size pickups, which is good for us obviously,” Shanks said. Continued strong U.S. sales will generate “a lot of cash flow that we can continue to invest in the business.”

Ford CEO Mark Fields: "We promised a breakthrough year in 2015, and we delivered."

Shanks said concerns about the market peaking and then falling off have factored into Ford’s declining stock price. But when the economy does ultimately contract again, Ford is much more prepared than it was the last time, he said.

“We have a very strong, robust structure,” Shanks said. “If and when there will be a downturn, we’re very well prepared to manage that -- continue to be profitable, continue to pay our regular dividend and continue to invest in the business, so that when we come out on the other side, we’ll be ready.”

In the first half of 2015, Ford’s revenue and profits were hampered by low availability of the aluminum-bodied F-150 pickup. U.S. sales of the F-series, Ford’s top-selling and most lucrative nameplate, ended the year up 3.5 percent.

The company’s total U.S. vehicle sales rose 5.3 percent, with its market share slipping to 14.9 percent from 15 percent in 2014.

Ford sold 7.8 percent more SUVs and crossovers in 2015, after redesigning the Edge and MKX and freshening the Explorer. Explorer sales reached their highest level since 2004.

Average prices rise

At the same time, Ford’s average transaction price at U.S. dealerships rose 3.6 percent last year to $35,979, according to Kelley Blue Book. Buyers paid an average of $46,065 for the F-series, up 4.3 percent, and $40,266 for the Explorer, a 2.4 percent increase.

"The U.S. market is hungry for the same products Ford specializes in, with sales growth for the F-150, Explorer and Edge generating strong income last year," Karl Brauer, a senior analyst with KBB, said in an email.

"The concept of developing and committing to a long-term global product plan, instituted under Alan Mullally and maintained by Mark Fields, is working for Ford."

You can reach Nick Bunkley at nbunkley@crain.com -- Follow Nick on Twitter: http://www.twitter.com/nickbunkley

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