Ford Motor (F, Financial) released its second quarter earnings recently with earnings down 9% to $2.09 billion as the boom in the U.S. market is gradually displaying signs of cooling.
Rising incentives in the domestic economy and growing costs in China are among the factors that influenced the Blue Oval’s results. The company earnings came in at 52 cents per share as compared with the Wall Street estimate of 60 cents per share. This spoiled investor sentiment which was reflected in the share price that plunged 7.1% to $12.85.
The Detroit-based automaker’s second quarter pretax profit of $3 billion helped it to register a record first half, but indications that the second half of the year could be weak were taken negatively by the investors. Here’s a closer look at the performance of the second-largest American automaker.
Quarter snapshot
Ford generated profit of $2.09 billion during the second quarter of the year compared with $2.16 billion earned in the year-ago quarter. The carmaker’s revenue came in at $39.49 billion, up 6% from $37.26 billion recorded last year.
North America remained the company's major profit contributor. The company earned $2.7 billion from this market, but that was down $135 million over last year. Ford Chief Financial Officer Bob Shanks said demand is stabilizing, and the company is preparing for “some new risks and market challenges around the world.” Ford launched refreshed vehicles including Fusion, Lincoln MKZ and Focus RS, which helped the company support its sales volume. However, the automaker is expecting to take a hit in volume once it moves to the aluminum-bodied Super Duty pickup.
Ford was happy to report positive results in Europe. The automaker earned $467 million during the period, making it the best second quarter ever reported by the company. Ford is expecting to lose $145 million in the latter half of the year on account of the U.K.’s decision to make an exit from the European Union. This could cost the Blue Oval $400 million in 2017 and $500 million in 2018.
Ford lost money in the remaining markets. The company suffered a loss of $256 million in South America owing to the troubled Brazilian market. In the Middle East and Africa, Ford lost $65 million, and in Asia Pacific it recorded a loss of $8 million. This is the first time the company has seen a loss in the Asia Pacific market in the last 13 quarters.
Looking ahead
During the earnings, Shanks said, "Overall, it was a strong quarter -- in fact, it was one of our best second quarters ever." He further added, "But at the same time, we now see a number of risks that the Ford team is working hard to mitigate in order to achieve our full-year guidance."
Even as Ford is expecting the second half to be softer, the company hasn’t altered its annual target. However, the company has made it clear that it will have to undertake aggressive cost-cutting measures in the rest of the year so that it can achieve its revenue, profit and operating margins guidance.
Ford is also faced with the concern of demand leveling off in the U.S. The company is expecting to see lower volumes in the third quarter when its top selling model, the Super Duty F-Series pickup truck, goes for a facelift, leading to a production slowdown. In addition to this, the automotive market in the U.S. is growing tough as carmakers are providing increased incentives and higher discounts for expanding market share. It would be interesting to see how Ford steers through the current market environment to meet its fiscal guidance.
Disclosure:Ă‚ I do not hold any position in the stock mentioned in this article.
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