Ford outlook sours ahead of EV push; Q4 results come later today

DETROIT — Ford Motor Co. insists it's on track to deliver consistently strong profit margins at the end of the decade.

But in the meantime, the automaker will feel some financial pain. And it said losses from its work on autonomous vehicles and mobility services will increase before that part of the business generates profits.

Ford lowered its forecast for 2018, which CEO Jim Hackett bluntly characterized as a "bad year," though it's still expected to be a highly profitable one. Ford's per-share guidance for 2018 translates to earnings of $8 billion to $9.2 billion, according to investment firm Barclays Capital, down from an initial forecast of $9.9 billion.

Ford shares, which had started the week by hitting a 52-week high, fell nearly 7 percent in response to the news.

CFO Bob Shanks, speaking last week at the Deutsche Bank Global Auto Industry Conference here, said the company will face about $1.6 billion in increased commodities costs, including steel and aluminum. Adding to the financial woes are the mobility investments, which were about a $300 million drag on earnings in 2017, the first year in which they've been broken out separately. Executives said mobility losses would be larger in 2018.

"The presentation was a reminder that the transition at Ford in the Hackett era will take time and that we have a long journey ahead — just as the Mulally era a decade ago took several years to bear fruits," Barclays analyst Brian Johnson wrote in a Wednesday, Jan. 17, report. "It doesn't seem as if there are any low hanging fruits on cost to drive upside to earnings, and Ford appears to be in the very early stages in its strategy transition in EVs and autonomous."

Shanks said the company was "not satisfied with our performance" but assured investors that he's optimistic.

"I have a lot more confidence about our future today," he said. "I have the clarity around the direction we're heading as a business."

That direction includes an $11 billion bet on electrified vehicles, as well as a portfolio shift away from cars to more popular and profitable crossovers and SUVs.

Hackett has directed Ford to divert $7 billion in product-development funding from cars to light trucks, and last week the company said its product mix would rise 10 percentage points for utility vehicles and fall 10 percentage points for cars in the coming years.

"We have a rock solid foundation and we have seen growth in key areas," Jim Farley, Ford's president of global markets, said in a statement. "But we know we must evolve to be even more competitive, and narrow our full line of nameplates in all markets to a more focused lineup that delivers stronger, more profitable growth, with better returns."

Farley said that means focusing on performance SUVs and "authentic off-roaders" — spaces where Ford can generate higher profits even in a crowded utility field.

He said Ford would scale back on car offerings in North America and Europe.

"We've made a lot of progress under One Ford, but it isn't enough," Farley said. "We're pivoting away from a full line, all-market approach."

Meanwhile, Ford is spending big on vehicle electrification. It said the $11 billion it plans to spend by 2022 includes $6.7 billion between 2015 and 2020 — almost 50 percent more than the $4.5 billion originally planned for that period — and an additional $4.3 billion in the subsequent two years.

Ford said the investment will lead to its introduction of 16 battery-electric vehicles and 24 hybrids or plug-in hybrids globally. On Tuesday, Jan. 16, it said North America will get seven of the 16 battery-electrics. Europe will get three, and Asia Pacific will get 13, which means some vehicles would be sold in more than one region.

Including gasoline-powered vehicles, Ford said it will have 25 product launches in North America by 2019, with 35 percent of its lineup getting updated. Ford has had fewer new vehicles in recent years. Europe will have 27 launches by 2019, while Asia Pacific will have 24.

Ford said it expects to end 2017 with net income of $7.8 billion, up 70 percent in large part because of a much lower effective tax rate. It said pretax profits will be about $8.4 billion, down 19 percent, or $1.9 billion, from 2016 but in line with its most recent guidance. The company plans to release its final fourth-quarter results Wednesday, Jan. 24.

To placate shareholders, Ford will pay a $500 million supplemental cash dividend, in addition to its regular first-quarter dividend of 15 cents per share.

The special dividend is more than twice the amount of the one Ford paid a year ago. Since 2012, it has returned $15.4 billion to shareholders via dividends and share repurchases, Shanks said.