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Lackluster U.S., China sales drag on Ford Motor profit, shares tumble

Posted by: Admin | Posted on: July 28th, 2016 | 0 Comments


DETROIT Ford Motor Co (F.N) reported weaker-than-expected profit in the second quarter and declared that the U.S. auto industry’s long recovery was at an end, sending its stock and those of other auto companies tumbling.

Ford shares slumped nearly 10 percent in morning trading on Thursday, after Chief Financial Officer Bob Shanks told reporters the U.S. economic recovery is “maturing,” and forecast sales would be weaker in 2017 than in 2016.

Ford’s market valuation was down more than $5 billion since Wednesday’s stock market close.

Shares of General Motors Co (GM.N) skidded about 4 percent as its market value fell about $1.7 billion. Fiat Chrysler Automobiles NV shares (FCAU.N) dropped more than 5 percent following Ford’s results as the Italian-American automaker’s market cap lost $460 million since Wednesday’s close.

Shanks said weakness in North America, where Ford generated 90 percent of its $2.99 billion pretax profit in the latest quarter, threatened the automaker’s earlier forecast that it would equal or beat last year’s pretax profit of $10.8 billion.

Ford said it will cut production in the second half of the year to reduce inventories of vehicles and accelerate cost-cutting efforts.

The company now expects the U.S. economy to grow 1.9 percent to 2.3 percent this year, lower than its previous expectation of 2.1 percent to 2.6 percent growth. The Federal Reserve last month trimmed its forecast for U.S. economic growth to 2 percent from 2.2 percent in March.

Ford’s downbeat view of the U.S. market contrasts with that of rival General Motors, which last week raised its outlook for full-year results and reported stronger margins in its North American operations.

SIGNS OF STRESS

Ford’s second-quarter net income fell to $1.97 billion, or $0.49 per diluted share, from $2.16 billion, or $0.54 per share a year earlier. Excluding one-time items, Ford earned $0.52 per share, against analyst expectations of $0.60 per share.

Second-quarter revenue was $39.5 billion, up 6 percent from a year earlier, beating analyst expectations of $36.3 billion. Automotive revenue was $37 billion.

Ford’s results showed signs of stress in various ways. In North America, revenue grew 2 percent to $23.8 billion for the quarter.

But discounts, or sales incentives, took $999 million more out of the latest quarter’s pretax profit than in the second quarter a year ago, and pretax profit in the region fell by 5 percent to $2.7 billion.

Ford’s operating automotive margin in North America was 11.3 percent, down from 12.2 percent a year earlier.

“The competitive environment has increased as demand has slowed,” Chief Executive Mark Fields said during a conference call with investors. “This has resulted in higher industry incentives … as various competitors protect their share.”

Many analysts and industry executives have warned that the U.S. auto market was headed for a downturn after record sales of 17.47 million light vehicles in 2015.

Worries about U.S. demand also weighed on motorcycle maker Harley-Davidson (HOG.N), which Thursday lowered its 2016 U.S. sales outlook and warned of weakness in other markets.

WEAKNESS IN ASIA

Ford had trouble outside North America and reported its first quarterly loss in the Asia Pacific in three years, in part because of a weak performance in China.

Additionally, Shanks said a weaker British pound following the June 23 vote by Britain to leave the European Union, known as “Brexit,” cost the company about $60 million in the quarter.

The 2016 impact of Brexit on Ford is expected to be $200 million, he said, and each year until Britain leaves the EU will cost the company $400 million to $500 million, Shanks said.

He said there was too much uncertainty to predict what will happen once Britain leaves the EU.

Shanks said all options are on the table for cost cuts in Europe but he added the company at this point is not ready to announce any plant shutdowns in Britain.

Ford said its cost also rose for safety recalls, which are counted as part of its net income. The expense to cover recalls relating to air bag inflators made by Takata Corp 7312. was about $100 million in the quarter, Shanks said.

Europe was a bright spot for Ford; it made second-quarter pretax profit of $467 million in the region, up 190 percent, and a pretax margin of 5.8 percent. But Europe’s auto sales industry wide are expected to weaken in the coming quarters, Shanks said.

The third quarter will be weaker than normal, Shanks said. Instead of contributing to about 25 percent of the company’s annual profit, the third quarter’s contribution this year will be about half that, he said.

That will largely be due to costs for a new F-Series pickup truck heavy duty lineup, the first full redesign for the products in 19 years.

In early afternoon trading, Ford shares were down about 9.6 percent at $12.51.

(Editing by Bernadette Baum and Chris Reese)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/oodfm-R5e44/us-ford-motor-results-idUSKCN1081CA

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