Ford Cuts Forecast as Russia Turmoil Outshines U.S GainsKeith Naughton
Ford Motor Co., the second-largest U.S. automaker, said it will miss a profit forecast for 2014 as weakening sales in Russia, deflation in South America and recall costs in North America reduce income.
Pretax profit will be $6 billion in 2014, as much as $2 billion less than originally forecast, Ford told investors yesterday. Ford said it will have $1 billion of warranty and recall expenses this year. The company’s shares fell 7.5 percent, the most in three years, closing at $15.11.
“I was shocked at the amount of money the recalls are costing them,” Michelle Krebs, senior analyst for AutoTrader.com, said in an interview. “We could see the other things coming with how South America and Russia were deteriorating.”
European results suffered as low interest rates increased pension costs, while political upheaval in Ukraine depressed sales and fueled currency swings in Russia. Ford’s South American operations will lose $1 billion compared with an earlier projection of a small loss for the year, as inflation and depressed currencies hurt operations there. Regional pressures outshined bullish projections for the U.S., where Ford forecast sales next year rising to as much as 17.5 million vehicles, including about 200,000 medium- and heavy-duty trucks.
“We know we have challenges in 2014,” Chief Executive Officer Mark Fields told them. “We looked at the reality, we deal with it proactively and we move on.”
‘Just a Blip’
The setbacks, while significant, won’t upend Ford’s growth plans, Krebs said.
“This is just a blip,” she said. “I was pretty impressed by how Fields performed. His plan is ambitious and optimistic, but it seems like they have the building blocks in place to approach their goals.”
Fields, who replaced retired CEO Alan Mulally on July 1, yesterday made his first presentation to Wall Street investors and analysts. He projected the Dearborn, Michigan-based automaker increasing vehicle sales by more than 3 million by 2020, lifting Ford into the top five for global auto sales.
“We are a growth company in a growth industry,” Fields said. Global auto industry revenue will grow to $3 trillion by 2020, from $2 trillion in 2000, Fields said. “We want to get more than our fair share,” he said.
Ford didn’t anticipate the economic disruptions in South America and Russia or the rising warranty costs that caused the company to miss its 2014 earnings targets, Fields said. It will not take the company off its long-term growth plan, he said.
“I take a lot of comfort in the fact that this is a terrific story from where we were seven or eight years ago,” Fields said. “We’re a growth story going forward.”
Ford’s ambitious targets for 2020 may be undermined by global events, as 2014’s were. The company projects global auto sales rising to 110 million in 2020 from 85 million last year.
“Ford has worked hard to turn things around in Europe, but unfortunately, the market hasn’t rebounded in the same way as the U.S., hence the larger losses,” Matt DeLorenzo, managing editor at Kelley Blue Book’s KBB.com, said in an e-mailed statement. “Similar economic turmoil in South America has also contributed to Ford’s poor performance there. Unless there is a significant economic growth in those areas, look for Ford to continue to lag behind their projections of narrowing those losses.”
The company separately said that the next version of its Super Duty F-Series pickups -- those bigger than the full-size F-150 -- will be made of aluminum. A new F-150 with an all-aluminum body is due to go on sale this year.
The redesigned F-150 is among a record 23 new-model introductions Ford is making worldwide this year, including 16 in North America. Ford’s U.S. sales slipped 0.3 percent this year through August and the automaker has said 2014 profit will also dip -- to the lower end of its projected 8 percent to 9 percent projected margin range -- as it retools factories and spends to introduce new products. Ford had net income of $2.3 billion in the first half of the year, down from $2.84 billion in 2013’s first half.
Lincoln, Ford’s lagging luxury brand, is a key part of Fields’s plan to capture a big chunk of the $1 trillion in industrywide revenue growth by 2020, Fields said. Ford plans to triple Lincoln’s global sales, to 300,000, by 2020 and will invest $2.5 billion on new models and to introduce the brand in China.
“That trillion dollars in opportunity, in Lincoln in particular, it is very compelling when you look at those numbers and you look at the growth and you look at the profit pool,” Fields said.
Ford said it will have eight Lincoln dealers in China by year’s end.
“Ford is being realistic on Lincoln by recognizing the turnaround and global growth of the luxury brand is a very long-term proposition, with big payoffs not likely until the next decade,” said Krebs, the AutoTrader.com analyst, said in an e-mail.
The warranty expense includes $500 million for a recall announced last week of 850,000 Fusion, Escape, C-Max and Lincoln models from 2013 and 2014 to replace air-bag modules.
Ford shares have lost 2.1 percent this year through yesterday, compared with a 7 percent gain for the S&P 500 Index.
The company projected 16.8 million to 17.5 million vehicle sales in the U.S. next year, including the medium- and heavy-duty trucks.