Ford Motor Co. second-quarter profits came in below expectations, as the company’s operations in South America lost money and Ford Credit’s profits fell due to a decline in the value of off-lease used cars sold at auction during the quarter.
Overall, Ford reported net income $2 billion in the second quarter, which was down $190 million from a year ago. Additionally, total company adjusted pre-tax profit of $3 billion in the second quarter, typically the industry’s most profitable, was down $293 million while earnings per share were 49 cents per share – down 5 cents per share from a year ago.
The results fell short of analyst consensus estimates of 60 cents per share; however, company revenue was up by $2.2 billion to $39.5 billion, exceeding analyst estimates of $36.1 billion.
Automotive segment operating cash flow of $4.2 billion was an all-time quarterly record and automotive segment pre-tax profit of $2.8 billion was down $130 million. Regions outside North America collectively also were profitable for a third consecutive quarter and automotive segment’s operating margin was 7.7%.
Ford operations in Europe delivered $467 million pre-tax profit – nearly triple year ago results – for its best ever second quarter.
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“We delivered another strong quarter – one of our best second quarters ever – and record pre-tax profits for the first half of this year. We remain committed to delivering another full year of strong profitability, even as we address some new risks and market challenges around the world,” Mark Fields, president and chief executive officer said.
Bob Shanks, Ford’s chief financial officer, added noted that despite the sluggish quarter, the company’s balance sheet received positive reviews from credit rating agencies in the form of “upgrades over the past few months.” He expressed optimism about meeting or exceeding the company’s stated goal of $10.8 billion in pre-tax profits for the year, although he expects a slow down in 2017.
“Combined with the very robust business structure we have achieved in North America,” he said in a statement, “this gives us confidence in fulfilling our commitment to distribute regular dividends to shareholders throughout a business cycle.”
North America pre-tax profit of $2.7 billion was down $135 million with an operating margin of 11.3%, but U.S. market share was 15.3%, which was an increase three-tenths of a point. The jump was driven by strong fleet sales and F-Series retail performance. Average U.S. retail transaction prices increased $1,300 per vehicle, compared to year ago, driven by strong mix, Ford officials said.
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Ford Credit profits dropped by 20% to 400 million due to the aforementioned auction problem.
In Europe, Ford posted a record second quarter pre-tax profit, nearly triple that of for the same period a year ago and year-over-year pre-tax profit improvement of $306 million was driven by favorable mix and improved cost performance. All second quarter metrics improved sharply, excluding market share, which was down slightly. Top-line growth remained strong with wholesale volume up 11%; revenue up 16%.
While Europe was strong, South America was not as all key metrics declined from a year ago, reflecting the continued difficult external conditions, particularly in Brazil, where the economy continued to shrink and industry volumes declined 22% higher loss primarily due to high local inflation and weaker local currencies continued to deliver lower costs across the business, the company noted.
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Ford also posted a small loss in Asia Pacific, largely due higher costs in China to support future growth and a weaker yuan. Wholesale deliveries were lower due to planned eight-week shutdown of Chongqing Plant No. 1 for facility upgrade, Ford said.