Ford’s 2Q profit better than expected despite CEO turmoil
DEARBORN, Mich. (AP) — Ford Motor Co. had a better-than-expected second quarter despite lower sales and upheaval in its executive ranks.
Net income rose 4 percent to $2 billion, thanks to a change in the company’s tax rate and a strong performance from its credit arm.
Ford’s new CEO Jim Hackett called it “a solid performance” but said the company still needs to get much more fit and nimble.
“We know we’re going to be quicker and more purposeful in our decisions about where to play and how to win,” Hackett told analysts and media in his first earnings call since he became Ford’s CEO. “We’re in an incredibly competitive industry and the competition just doesn’t relax because we’re thinking through a decision.”
Adjusted profits of 56 cents per share easily surpassed Wall Street expectations of 43 cents, according to analysts polled by FactSet. One-time items included a $248 million charge as the company shifted production of the Ford Focus small car from Mexico to China.
Ford’s automotive revenue of $37 billion was in line with Wall Street’s expectations. Total revenue rose 1 percent to $39.85 billion.
The elevated performance in the second quarter was due mostly to a lowering of the company’s corporate tax rate, from 30 percent down to 10 percent, Chief Financial Officer Bob Shanks acknowledged. Ford has put some overseas losses back on its books in anticipation of changes in the U.S. corporate tax code, Shanks said. The company expects to have a 15 percent rate this year, but that will return to 30 percent next year.
Ford’s full-year guidance shifted upward due to the tax change. Ford expects adjusted earnings of $1.65 to $1.85 for the full year, up from its previous guidance of $1.58 per share, Shanks said. But analysts pointed out that with the lower tax rate, that likely means a lower full-year net income than the $9 billion Ford previously guided.
Barclay’s analyst Brian Johnson said Ford may be lowering the bar to make it easier to meet expectations. But the move wasn’t greeted well by investors. Ford shares dropped 2 percent to $11.06 in afternoon trading.
Ford’s sliding stock price was one reason the company abruptly replaced former CEO Mark Fields with Hackett in May. Hackett was a member of Ford’s board and had been leading Ford’s mobility unit.
Hackett said Wednesday that he’s confident Ford’s stock performance will improve.
“The share price over time is going to reflect what we’re going to get done, and we’re going to get a lot done,” he said.
Hackett, the former CEO of office furniture company Steelcase Inc., is in the midst of a 100-day review of Ford’s operations. He said he has already whittled down his list of direct reports to eight, from the 19 that Fields had. That team is working on maximizing revenue on popular products like its commercial vans.
Hackett also said Ford is considering exiting some markets. General Motors Co. abandoned the European market earlier this year, but Hackett said Ford is competitive in Europe and plans to stay.
Hackett also said Ford will prove that it can compete in new mobility efforts like ride-sharing and driverless vehicles. He said Ford’s recent $1 billion investment in Argo AI, an artificial intelligence startup, will put the company at an “elite level” in terms of its deep learning capability.
Overall sales fell 3 percent to 1.65 million vehicles. Much of that decrease was due to lower sales of the Fiesta in Europe as the company prepares to launch a new Fiesta, Shanks said.
Ford earned $2.2 billion in North America, its biggest market. That was down 19 percent from the April-June period a year ago as Ford spent more on incentives and commodities, including steel. The company broke even in South America, Europe, the Middle East and Asia.
It was the best quarter since 2011 for Ford Credit, which is seeing stronger-than-expected auction values for Ford’s off-lease vehicles, Shanks said. Ford Credit’s revenue rose 7 percent to $2.7 billion in the quarter.