Earnings Review: Ford’s Profit Falls On Poor North America Sales
Ford Motor Company (NYSE: F) reported earnings for the third quarter of fiscal year 2016 on Thursday, October 27th. The Detroit based auto maker reported a 56% decline in earnings per share on the impact of a 5.8% decline in revenue and a 5.9% increase in operating expenses.Ford had an extremely strong first half of 2016, making $ 6.8 billion in pre-tax profit. It was earlier targeting a full year pre-tax profit of $ 10.8 billion but revised this to $ 10.2 billion at the end of the second quarter citing three factos: 1) the impact of a 2.4 million car recall related to defective door latches; 2) the decline in the Euro and Pound Sterling as a result of the Brexit vote; and, 3) the high launch-related costs of Ford’s Super Duty pick-up truck.
In the third quarter, the company made $ 1.08 billion in pre-tax profit with a $ 295 million loss in South America and a $ 152 million loss in the Middle East and Africa. Even though the company posted pre-tax profits of $ 1.29 billion and $ 138 million in North America and Europe respectively, its transaction prices fell in both regions. In terms of unit sales, the company reported sluggish year-over-year comps in both North America and Europe, with sales in the former declining 10.9% and the latter 14.4%. However, transaction prices increased by 3.2% in North America and 5.5% in Europe. Ford’s pick-up trucks have regained the top position in the commercial trucks market. It has also two of the 5 highest selling SUVs in the U.S. auto market. But still its transaction prices are up reflecting the strength of Ford’s market position in both regions. Still, the company is suffering from an industry wide slowdown in North America. We’ve written in the past on what Ford stands to lose from a slowdown in the U.S. auto market.
The company’s performance in China was a bright spot in this otherwise disappointing quarter. The auto market in China has done quite well with year-over-year sales growing by 15%. Ford’s market share has grown from 4.6% to 5.1% over the last year with unit sales growing by 34%. This is the result of excellent performance of the Ford Escape SUV, Ford Kuga and Ford’s commercial vehicles. We’ve written previously about how Ford turned around its performance in China and how much Ford can add to its bottom line by succeeding in China.
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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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