Ford profit edges up on lower tax rate

DETROIT -- Foreign tax credits helped Ford Motor Co.'s second-quarter net income rise 3.7 percent to $2.04 billion, but the automaker reduced its pretax profit outlook for the rest of the year amid declining U.S. industry sales and rising steel prices.

In CEO Jim Hackett's first earnings report, Ford profit margins, pretax earnings and market share all declined from the second quarter of 2016. CFO Bob Shanks said the company's pretax profit for 2017 will be "a little bit less" than the $9 billion it originally projected, although Ford boosted its earnings-per-share outlook because of a more favorable tax rate.

“No one here is satisfied," Jim Hackett, who replaced Mark Fields on May 22, told analysts and reporters on a conference call Wednesday. "We all know we have a lot of work to do.”

Ford said its tax rate in the second quarter dropped to just 10 percent, less than a third of the 32 percent rate it paid in all of 2016. That's because Ford, in anticipation of corporate tax-reform efforts by Congress and the Trump administration, chose to bring foreign tax credits onto its U.S. balance sheet now rather than later.

First look

The second-quarter results offer the first snapshot of the company's finances and operations inherited by Hackett, a former Ford director who headed the automaker's mobility efforts starting in 2016. He called the second quarter results a "solid performance," but said the automaker will likely make some changes once it concludes a 100-day review of operations in about a month.

Ford shares closed down 1.9 percent to $11.06.

Pretax profits fell 16 percent in the quarter to $2.51 billion because of higher steel costs, an unfavorable foreign-currency exchange rate and lower U.S. sales, among other factors. Revenue rose 0.9 percent to $39.85 billion.

The automaker took a $248 million charge in the quarter to end production of the Focus compact car in South America, a decision made public for the first time Wednesday. A Ford spokesman declined to say when production would end. The move follows news that Ford will end Focus output in North America next year and begin importing the car from China in 2019.

Recall charge

Ford's profits also were hurt by a $142 million charge for a June recall of 402,462 Transit vans in North America for possible driveshaft separations.

Ford's second-quarter profit margin of 5.9 percent was down from 7.7 percent a year ago, and well below the 10 percent margin that General Motors reported Tuesday in its second-quarter results. Ford's adjusted earnings were equal to 56 cents per share, up 4 cents from a year ago and topping analysts' estimates of 43 cents per share.

Nearly all of Ford's profits were generated in North America. It generated a $2.2 billion pre-tax profit in the region, down 19 percent from the same period a year ago amid declining sales. Revenue, however, rose 3 percent after Ford sold a more profitable mix of vehicles.

North America

Its North American market share fell one-tenth of a percentage point due to lower fleet sales, mainly in the car segment.

Also denting North American profits: $126 million in engineering expenses as Ford works on a plan to add 13 electrified vehicles and five new SUVs to its lineup by the end of the decade.

Hackett said Ford expects its mix of vehicles will continue to help, as it introduces a midcycle update to its lucrative F-150 pickup later this year. Redesigned versions of the Expedition and Lincoln Navigator, due in showrooms this fall, will also boost profits.

Ford earned $143 million in the Asia Pacific region, versus a small loss a year ago, driven by higher volumes in China.