Ford profits down nearly half due to supplier fire, China

July 25, 2018 in News by RBN Staff


Source: Detroit News

Plant Fire Michigan

Ford Motor Co. blamed a May supplier fire that disrupted F-150 production for days, as well as poor performance in China for second-quarter for profits that were down nearly $1 billion compared to a year ago.

Ford made $1.1 billion in the second quarter of 2018, a nearly 50 percent decrease compared to last year. The Dearborn automaker also lowered its full-year earnings guidance, blaming a “challenging quarter” in its Asia Pacific and European markets.

The automaker now forecasts an adjusted earnings per share of $1.30 to $1.50. That’s down from the $1.45 to $1.70 per share forecast at the start of the year, according to Bob Shanks, Ford chief financial officer, a roughly 11 percent decline.

“This quarter we achieved solid results in North America, offset in part by unexpected challenges with our overseas operations and headwinds in the business environment,” said Jim Hackett, Ford president and CEO, in a statement. “Our fitness actions continue to take hold and we’re clearly committed to redesigning and restructuring the underperforming parts of our business.”

The automaker reported the fire at the Meridian Magnesium Products plant in Eaton Rapids cost the company $591 million. It lost nearly $483 million in China. Shanks also said rising steel and aluminum costs due to tariffs cost the company roughly $145 million, and estimated it would incur about $500 million to $600 million in costs in 2018 due to the ongoing trade war.

There is “a lot of work ahead of us in China,” Shanks said.  “We’re very disappointed in that result.”

The automaker reported earnings before interest and taxes of $1.8 billion in North America and $49 million in the Middle East and Africa. The automaker lost $178 million in South America, $73 million in Europe and $394 million in its Asia Pacific market.

Ford’s second-quarter revenue totaled $38.9 billion, and 27 cents adjusted earnings per share.

Shanks said the company has a road map of “where to play” in the future, which will require restructuring that could potentially cost the company $11 billion on its earnings before interest in taxes over the next three to five years.

He did not offer details on where those charges would come from, but said for the company to have identified a dollar amount and a time frame, it has a view on where it will need to invest and where it will not invest in the future.

“For us to have identified a specific number and a specific time frame, we have a point of view about where we’re going to make investments and where we’re going to allocate our capital in the future, we have a point of view where we’re not,” Shanks said. “And the consequence of not making those investments would be a business that needs to be dispositioned. And in part, that would be done through a restructuring.”

The results come during a tough transitional period for Ford, according to industry analysts. Not only is the company undergoing internal shifts to the organizational structure, but its sales are slipping compared to a year ago due to an aging product lineup, the brand is not performing in China compared to a year ago, and the company is still nearly a year away from a product launch gambit expected in 2019.

And the entire industry is facing headwinds as sales plateau.

The automaker is taking “urgent action to address underperformance” in China, according to a news release attached to its second-quarter balance sheet.

Ford, General Motors and Fiat Chrysler Automobiles NV all reported second-quarter earnings on Wednesday. GM and FCA both lowered earnings outlooks for 2018, though only GM attributed the adjustment to higher commodities costs than expected on the back of the international trade war in which U.S. President Donald Trump is currently engaged.

GM reported a $2.4 billion second-quarter profit. FCA said Wednesday its net profit grew to $882 million (754 million euros) last quarter.

The second-quarter results were announced a day after Ford detailed plans to create a separate unit within the company for its autonomous vehicle business. 

Ford Autonomous Vehicles will house all parts of Ford’s self-driving vehicle business. It’s a signal from the Dearborn-based automaker that its autonomous vehicle research is gaining traction, and the various facets of the company’s autonomous vehicle business is reaching a point where it needs to break out from under the Ford Smart Mobility umbrella.

The second quarter results come roughly 14 months into Hackett’s tenure as CEO, and amid continued cost-cutting and evaluations within the Dearborn-based automaker.

The company posted a $1.7 billion profit in the first quarter of the year, a 9 percent increase from a year prior. But Shanks said at the time that Hackett’s work to cut costs wouldn’t show results until 2019. Company officials have repeatedly stressed that the 2018 outlook, while profitable, is not as impressive as they’d like.

The company plans to trim $25.5 billion in operating costs by 2022 and cut its North American passenger car lineup by more than 80 percent, eliminating the Taurus, Fiesta, Fusion, C-Max and Focus sedans within a few years, and replacing at least the Focus and Fusion sedans with crossover wagons.

Ford plans to add five all-new SUVs over the next two years, along with the 2019 Ranger midsize pickup that debuted at the Detroit auto show in January. The company plans for nearly 90 percent of its vehicles sold in 2020 to be a truck, SUV or commercial vehicle.

The automaker is also pushing to focus on high-margin segments of the business, improving profitability in segments that are profitable but don’t currently make a lot of money – and either cutting or changing the pieces of the company deemed “low performing.”

Twitter: @Ian_Thibodeau