Ford Raises North American Forecast Citing F-150 Progress

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Ford Motor Co. raised its North American profit margin forecast for the year, showing confidence that it will soon move beyond the changeover that has crimped F-150 production for more than a year.

Ford lost output of more than 100,000 trucks since the start of last year while it retooled two factories that make the model. A plant near Kansas City, Missouri, began building the F-150 last month and Chief Executive Officer Mark Fields has said it will reach full production by mid-year.

Initial buyers are snapping up fully loaded models, exceeding Ford’s projections on revenue and profit on the new F-150. It’s going so well that Ford raised its 2015 profit-margin forecast for North America by half a percentage point to 8.5 percent to 9.5 percent. Fields has said pretax profit will grow as much as 51 percent this year as full production resumes for the F-150, the top-selling version of its F-Series line.

“Thank God for the F-150,” Bob Shanks, Ford’s chief financial officer, said in an interview. “It’s getting a very strong and positive market reception. It’s even stronger than we anticipated.”

Once the truck reaches full production in July, it will drive a “breakthrough year,” in which the company will earn pretax profits of $8.5 billion to $9.5 billion, Shanks said. With limited production in the first quarter, sales of the F-150 fell about 40 percent, or about 60,000 trucks, he said.

Had Ford had full output of the F-150 and its Edge sport utility vehicle in the first quarter, its North American profits would have improved by more than $1 billion and its operating margin would have topped 10 percent, rather than falling to 6.7 percent, Shanks said.

“We’re mostly through the launch of the F-150,” Fields told analysts on a conference call Tuesday. “As we get into the second half of the year, we’re seeing really great acceptance of our new products.”

Ford rose 1 percent to $16.06 at the close in New York. The shares have gained 3.6 percent this year, outpacing the Standard & Poor’s 500 Index, which is up 2.7 percent.

‘Big Risk’

“Ford took a big risk to do the F-150 in aluminum, but they’re confident with what they’ve got,” said Bernie McGinn, CEO of McGinn Investment Management in Alexandria, Virginia, which holds about 400,000 Ford shares. “We’ll see over the next year how that works out for sure. There has been some uncertainty.”

The strong dollar hurt Ford’s results from outside of North America. Results in Europe, South America and the Asia-Pacific region were worse than analysts had projected, Joseph Spak of RBC Capital Markets said in an e-mail. Ford’s 23 cent-a-share profit missed the average estimate for 26 cents. Two cents of that miss were attributable to the company’s tax rate of 34 percent exceeding the 29 percent that analysts had anticipated.

Net income slid to $924 million from $989 million a year earlier, Ford said in a statement Tuesday.

But the key to Ford’s results is still North America. The F-Series, including larger versions such as the F-250, accounts for 90 percent of the company’s global automotive profit, according to Morgan Stanley.

F-150 Progress

Total F-Series sales in the U.S. rose 2.3 percent in the first quarter after falling 1.3 percent for all of last year. The truck was the nation’s top-selling vehicle for the 33rd straight year in 2014. The new F-150’s fuel economy increased as much as 29 percent, primarily because the aluminum body trimmed the truck’s weight by about 700 pounds (318 kilograms).

“Given the magnitude of changeover activity at the company, we believe the results may be seen as a relief,” Adam Jonas, a Morgan Stanley analyst who rates Ford underweight, wrote today in a note. “A better-than-expected outcome in North America, with higher margin guidance, should be a source of comfort to investors despite concerns overseas.”

First-quarter pretax operating income in North America was $1.34 billion, down from $1.5 billion a year earlier. Ford’s U.S. car and light-truck sales rose 2 percent in the quarter, trailing the industrywide gain of 5.6 percent. That reduced the company’s market share to 15 percent from 15.5 percent, according to researcher Autodata Corp.

Ford expects to reverse market share losses in North America in the year’s second half, ending with an overall gain for the year, Shanks said.

Ford raised its forecast for North American operating margin from 8 percent to 9 percent, in part due to a better than expected introduction of the F-150, Shanks said.

“The real positive is the emerging strength of North America,” he said. “We don’t think we’re going to miss a beat.”

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