Ford posts 7% drop in Q1 profit, still sees 'breakthrough year'
DETROIT -- Ford Motor Co., which has forecast a “breakthrough year” for itself after remaking a large swath of its global lineup, today said its first-quarter net income fell 6.6 percent to $924 million as the launch of its aluminum-bodied pickup cut production.
Ford said the F-150 introduction has gone so well that it is increasing its projections for North American profit margins slightly but that economic conditions in South America have been worse than expected.
Revenue in the quarter fell 5.6 percent to $33.9 billion.
“The first quarter was a good start to a year in which our results will grow progressively stronger as the new products we have been launching start to pay off,” Ford CEO Mark Fields said in a statement. “We are re-confirming that 2015 will be a breakthrough year for Ford.”
Chief among those new products is the redesigned F-150, which analysts say accounts for a majority of Ford’s profits. The truck went on sale at the end of 2014, but sales have been slow because the plant changeover process has kept it in short supply so far.
F-150 shipments were about 60,000, or 40 percent, lower than in the first quarter of 2014, Ford CFO Bob Shanks said. Shipments of the Ford Edge crossover, which also is newly redesigned, were reduced by more than half.
Ford earned $1.34 billion in North America, 11 percent less than the same period a year ago. Operating margins declined to 6.7 percent from 7.3 percent.
But at normal production rates, North American profits would have been at least $1 billion higher and margins “would easily have been over 10 percent,” Shanks told reporters at Ford’s headquarters.
“Those are high-margin products, high-revenue products,” Shanks said. “We’re going to have a lot of tailwinds behind in terms of product performance by the second half” of the year.
The F-150 and other introductions have reduced margins and contributed to a U.S. market share decline. Ford’s U.S. vehicle sales in the first quarter rose 2 percent, but its share fell half a point to 15 percent.
Last week, Ford confirmed plans to cut 700 jobs and eliminate a shift at a small-car plant outside Detroit as low gasoline prices dampen sales of the Focus and C-Max it builds there.
But Ford said it now expects North American margins of 8.5 percent to 9.5 percent for the year, up from earlier guidance of 8 percent to 9 percent, largely because buyers have been choosing more high-priced F-150s than expected.
“We don’t see that we’re going to miss a beat whatsoever in terms of the contribution of the F-150 to our overall business,” Shanks said. “We do expect that, over the remainder of the year, we’ll see a share increase in North America.”
In South America, Ford reduced its first quarter loss by 63 percent to $189 million. It said full-year results are expected to be improved from a year ago, but not as good as it had estimated in January.
Its European loss shrunk 4.6 percent to $185 million. Ford lost $1.1 billion in Europe last year due largely to issues in Russia, a market that General Motors last month said it would largely abandon.
Ford was profitable in its Asia Pacific region, as well as Middle East and Africa.
Shanks said about 70 percent of Ford’s global revenue decline in the quarter was related to the strong value of the U.S. dollar and other currency-exchange fluctuations.
“We’re very much on track for that breakthrough year we had talked about,” he said.
Ford is introducing 15 new or refreshed vehicles this year, including three in the first quarter, after rolling out 24 in 2014. The Edge went on sale in March, and the Explorer is on the way this summer. It’s also in the midst of a major product offensive in China, where it last week showed a new SUV called the Everest and a version of the Taurus sedan designed specifically for that market, with massage units built into the rear seats.
Ford executives have said the product-launch schedule means the company will post stronger results in the second half of the year, when sales of the new vehicles begin to hit their stride.
“Since the recession, Ford has been spending on technology and expansion overseas in key markets. This year these risks will start to pay off,” David Kudla, CEO of Mainstay Capital Management in Grand Blanc, Mich., said in a report last week. “We believe the new model launches around the world, particularly with the ramp-up of the F-150, are beginning to take effect and will provide a much needed jumpstart to the stock's performance this year.”
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