Ford posts Q4 net loss on accounting shift; operating profit slips

DETROIT -- After posting a fourth-quarter net loss mainly because of accounting changes, Ford Motor Co. finished 2016 with a $10.4 billion pre-tax profit, down slightly from record results in 2015.

Fourth-quarter pre-tax profit was $2.1 billion, down $500 million due to a North American reduction in inventory and unfavorable conditions in the Middle East and Africa, and Asia Pacific. Its fourth-quarter net loss of $800 million compared with a $1.9 billion profit a year earlier, the company said in a statement. 

Ford took a $3 billion fourth-quarter hit because of the way it accounts for pensions and a $200 million charge for canceling its small car plant in San Luis Potosi, Mexico, a move that followed criticism from then President-elect Donald Trump. The automaker said it doesn’t expect any additional charges related to the aborted facility.  

The automaker’s full-year net income of $4.6 billion was down $2.8 billion from 2015. For the full-year, Ford posted an automotive operating margin of 6.7 percent. Its total company revenue of $151.8 billion was up $2.2 billion from a year ago.

“This underscores the substantial progress we are making in expanding our business to be an auto and a mobility company,” CEO Mark Fields said in the statement.

Ford did not reveal its revenues from mobility services.

The company's shares fell 3.3 percent to close at $12.37 on Thursday.

Ford’s 2016 earnings were driven by a strong performance in North America, where it posted a $9 billion pre-tax profit, down $344 million from last year’s record earnings. It posted a 9.7 percent operating margin in the region, driven by strong pricing for some of its most profitable vehicles, including its F-Series trucks and SUVs.

Roughly 56,000 Ford-UAW workers will get $9,000 profit sharing checks on March 9. That’s the second-most ever paid out to Ford’s union employees, although down slightly from last year’s record $9,300 payout.

“The profit-sharing payout, expected to average approximately $9,000 for each of our 56,000 hard-working men and women, will provide a substantial benefit to their respective communities across this great country," UAW Vice President Jimmy Settles said in a statement.

“I’m also reminded that profit sharing is a major topic of discussion during negotiations with Ford," he said. "Profit sharing is not a benevolent payout by the company, but something our members deserve and demand. The UAW first won this benefit in 1982, and we continue to fight to maintain and improve profit sharing with each subsequent round of negotiations."

Competitor Fiat Chrysler Automobiles said earlier it is paying out an average of $5,000 to its 40,000 UAW-represented workers. 

Other regions

Ford posted a record $1.2 billion pre-tax profit in Europe, including a record 4.2 percent operating margin. Despite concerns over the U.K.’s recent vote to leave the European Union, continued struggles in Russia, and launches of the Fiesta and EcoSport, the automaker expects to make its third consecutive profit in Europe in 2017, although it projects that the numbers will fall from 2016. 

Its $627 million pre-tax profit in Asia Pacific was its second-best result there.

For the year, the automaker lost $1.1 billion in South America and lost $302 million in the Middle East and Africa.

The automaker’s full-year earnings per share of 30 cents per share was equal to a Wall Street consensus.

Ford’s guidance for 2017 remained unchanged. It expects profits to slip compared with 2016 as it invests in new mobility services. Most other regions around the world will improve, but it does expect its $1.1 billion loss in South America will worsen.

Analysts are encouraged by the automaker’s performance.

“There is substantially encouraging news out of Ford in the revenue and profit front, but a few red flags, such as incentive spend and heavy reliance on pickups and SUVs in the U.S,” said Rebecca Lindland, senior analyst for Kelley Blue Book. “The news globally is quite positive. If Lincoln continues accelerated growth in China, it could be a boon for the brand and the company and spawn additional products both in the U.S. and China.”

Barclays analyst Brian Johnson praised Ford’s decision to trim production in the latter part of 2016 “as it realized it overproduced earlier in the year.”

“Looking into 2017 … today’s result is maybe a sign that if Ford remains committed to production discipline, and if pricing environment is not as negative as we initially feared, there could be upside to Ford estimates,” Johnson wrote.

For the full year, Ford Credit posted a $1.9 billion pre-tax profit, down $207 million from 2015. The company projects a $1.5 billion pre-tax profit in 2017 because of lower U.S. auction values.