Why Ford Lowered Its Full Year Guidance For 2016
Ford Motor Company (NYSE: F) posted an extremely strong set of results in the second quarter of the fiscal year 2016. However, these results looked slightly underwhelming compared to the second quarter of 2015, since that was a year of record profitability for the company. In fact, a couple of factors are likely to ensure that full year results for the company are also below last year’s numbers. First there is the expected impact of Brexit vote, admittedly of lesser magnitude. More notable is the recall related to defective door latches that will affect close to 2.4 million vehicles.
Earlier this month, the company announced that it was lowering its full year pre-tax profit guidance to $ 10.2 billion on the impact of the recall, which is likely to cost the company close to $ 640 million. In the first half of 2016, the company earned $ 6.8 billion in pre-tax profits and was expecting a full year pre-tax profit of close to $ 10.8 billion. In the earnings call following the second quarter, the company said that it expected lower profits in the third quarter as a result of increasing expenses related to the launch of new vehicles but maintained its full year guidance.
The initial recall was restricted to the warm weather states in the U.S., but on the prodding of the National Highway Traffic Safety Administration the recall has been extended to cover all affected vehicles in the U.S., Canada and Mexico. The lowering of guidance is unexpected and shouldn’t concern investors as it is unrelated to the core of the business that Ford is engaged in but its impact on top of the $ 200 million Ford expects to lose in profits from its European operations as a result of the Brexit vote will weigh on the company’s bottom line.
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Notes:
1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Ford Motor
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