Ford Profit Beats Estimates on Record North American Income

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Ford Drives Fully-Loaded F-150 Sales to 44% Profit Growth

Ford Motor Co. posted a 44 percent surge in second-quarter profit, exceeding analysts’ estimates thanks to consumers paying big money for new models including fully loaded versions of the new aluminum-bodied F-150 pickup.

Ford reported net income of $1.9 billion, or 47 cents a share, compared with $1.3 billion, or 32 cents a year earlier. Profit beat the 37-cent average estimate of 17 analysts surveyed by Bloomberg.

The results ease pressure on Ford for the second half. Chief Executive Officer Mark Fields has pledged pretax profit will grow by as much as 51 percent this year as Ford resumes full production of the F-150, its top selling model. Ford had record profits in North America, with an operating margin of 11.1 percent, even as it sold fewer of its pricey pickups.

“This is a great quarter that demonstrates that there’s more to Ford and more to North America than the F-150,” Bob Shanks, the automaker’s chief financial officer, said today on Bloomberg TV. “We’re excited about what’s ahead for us with the F-150.”

Ford has said it will be the end of September before dealers are fully stocked with F-Series trucks, which account for 90 percent of its global auto profits, according to Morgan Stanley.

Ford started offering discounts of more than $10,000 on the new truck in some areas after U.S. sales fell 8.9 percent last month. Yet, incentives average $3,900 per truck and are down from last year, Shanks said.

General Motors Co.’s Chevrolet Silverado and Fiat Chrysler Automobile NV’s Ram truck have gained share at the F-150’s expense this year by dialing up discounts and promotions.

“I welcome it, go for it,” Shanks said in an interview. “Clearly, as we’re going through a launch, they’re trying to take advantage of that. But we’re coming out of the launch now and building stock, so we’re ready for it.”

Ford Shares Rise

After Ford reported earnings, the company’s shares jumped as much as 3.1 percent to $15 in early trading. The shares closed up 1.9 percent at $14.83 at in New York.

Ford’s profit margins are approaching or surpassing those of German luxury automakers such as Daimler AG and BMW AG, which means it’s time to sell shares of the U.S. automaker, Adam Jonas, an analyst for Morgan Stanley, wrote in a note today entitled “Ideal Conditions to Reduce Positions.”

“Can it get better than this?” wrote Jonas, who has an underweight rating on Ford. “Sure. But how much better?”

Ford has said it is selling many of its F-150s loaded with pricey leather seats and technology, which helps margins. The truck is selling for $44,100 on average, the highest transaction price of any full-size pickup on the market, according to Erich Merkle, Ford’s sales analyst.

Yet, Ford sold 25,000 fewer F-150s in the second quarter compared to a year ago and the truck did not add to profits as much this year as it did in last year’s second quarter, Shanks said.

“The F-150 is clearly doing well, but it was still in launch phase during the second quarter,” Shanks told analysts on a conference call today. “We had higher pricing and it was not just F-150, it was across many products in the portfolio.”

Ford’s pretax operating income in North America rose to a record of $2.6 billion from $2.4 billion, as Ford boosted North American production by 1.6 percent to 815,000 cars and trucks. Ford said it now believes its North American operating margin will be the high end of its forecast of 8.5 percent to 9.5 percent.

Frustrated Investors

Investors have been frustrated waiting for the F-150 to hit its stride and had driven down shares by 12 percent through yesterday since they peaked at $16.57 on March 2. Low gas prices cut both ways for Ford, boosting sales of its SUVs, while causing concern about slack demand for its fuel-efficient aluminum pickup.

Lower sales of cars and pickups reduced Ford’s U.S. market share to 15.1 percent in the first half from 15.5 percent last year, according to researcher Autodata Corp. F-Series sales fell 2.4 percent in the first half. Second-quarter automotive sales slipped to $35.1 billion from $35.3 billion.

Revenue was reduced by a $2.2 billion currency hit from the strong dollar in overseas markets, Shanks said.

Ford Motor Credit, the automaker’s financing arm, contributed a pretax profit of $506 million, up $72 million from a year ago, on an increase in consumer loans globally and leasing in North America, the automaker said.

China Slowing

In Europe, where turmoil in Russia forced Ford to abandon a plan to return to profitability this year, pretax operating losses of $14 million reversed a profit of $14 million last year. Ford’s sales in Europe rose 15.8 percent last month and are up 10.5 percent this year on strong gains by the Kuga and EcoSport SUVs, along with the Fiesta subcompact.

In South America, Ford posted a narrower pretax loss of $185 million, compared with a $295 million loss a year earlier. A currency crisis caused Ford to start selling cars in Venezuela in dollars to alleviate a shortage of greenbacks that has slashed its imports and paralyzed its plant. Ford temporarily halted production there in May because it had no foreign currency to import parts.

“It’s going to be tough for anybody to make sense out of a business in South America until the recovery takes place,” Shanks said on the analyst call. “There aren’t any signs of that happening yet.”

In Ford’s Asia-Pacific region, pretax earnings rose to $192 million from $159 million a year ago. Ford’s torrid growth in China cooled considerably this year, as sales fell 3 percent in June and are up only 0.1 percent for the year as the government puts the brakes on automotive growth.

“China is slowing,” Shanks said, adding that Ford has lowered its forecast for industrywide sales in China to be between 23 million and 24 million, down from a previous projection of 24.5 million to 26.5 million cars and trucks.

Ford hopes to jump-start sales in China with the continued rollout of its Lincoln luxury line and introductions of the Ford Taurus sedan and Everest and Explorer SUVs later this year. It also is opening a new factory in Hangzhou, just southeast of Shanghai, which will produce a 7-passenger version of the Edge SUV, designed specifically for the Chinese market.

“China was a very important absolute contributor to the results we had,” Shanks said. “I would expect that to actually strengthen in the second half because of the product launches and the added capacity coming on stream.”

Automotive debt, which excludes Ford Motor Credit, was $13.7 billion on June 30, up from $13.4 billion on March 31.

“Ford has a good product lineup across the board,” said Bernie McGinn, CEO of McGinn Investment Management in Alexandria, Virginia, which holds about 400,000 Ford shares. “The frustration I have with our Ford stock is it doesn’t seem to want to get above $18 and I can’t figure out why nobody wants to reward them.”

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