Ford's Profit Falls 35% on Recall Costs, Weaker U.S. Sales

By Adrienne Roberts and Christina Rogers Features Dow Jones Newswires

Ford Motor Co.'s first-quarter net income fell 35% over the same-year ago period, dented by safety-recall expenses, higher engineering and commodity costs, and weaker sales in its core U.S. market.

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The No. 2 U.S. auto maker on Thursday reported $1.6 billion in net profit for the three-month period, down from $2.5 billion in the first-quarter of 2016, when strong demand for a newly redesigned F-150 pickup truck helped Ford post its best quarterly operating profit in history.

Adjusted earnings per share were 39 cents in the first quarter, beating Wall Street expectations of 36 cents.

Revenue for the first-quarter increased by 4% to $39.1 billion, driven by a favorable mix of more profitable pickups trucks and SUVs.

Write to Adrienne Roberts at Adrienne.Roberts@wsj.com and Christina Rogers at christina.rogers@wsj.com

Ford Motor Co.'s first-quarter net income fell 35% over the same year-ago period on higher costs and weaker U.S. sales, but results beat Wall Street expectations, sending the stock price up 1.5% in midmorning trading.

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The No. 2 U.S. auto maker on Thursday reported $1.6 billion in net profit for the three-month period, down from $2.5 billion in the first-quarter of 2016, when strong demand for a newly redesigned F-150 pickup truck helped Ford post its best quarterly operating profit in history.

Adjusted earnings per share were 39 cents in the first quarter, beating analysts' consensus of 36 cents a share. Analysts attributed the beat to stronger-than-expected earnings in North America and at Ford Credit, the company's financing arm.

"The results were solid but it was a tough comparison" to last year's first-quarter results, Ford Chief Financial Officer Bob Shanks said on Thursday.

The Dearborn, Mich., auto maker faced headwinds at home and abroad with lower sales in China, an unfavorable exchange-rate impact in Europe due to Brexit and a tougher market in the U.S., where new-car demand is cooling after seven years of uninterrupted growth.

Mr. Shanks described the just-ended quarter as Ford's "toughest" this year and expects results to be flat "in aggregate" over the remaining three quarters.

Revenue for the first-quarter increased by 4% to $39.1 billion, driven by a favorable mix of more profitable pickups trucks and SUVs.

Ford is coming off one of its most profitable periods in history with its North American business benefiting from two years of record sales growth in the U.S. auto industry and surging demand for its highly lucrative trucks and SUVs amid low gasoline prices.

Ford earned a historically high $10.4 billion in operating profits last year but results were down slightly from 2015's record of $10.8 billion.

Company executives are forecasting leaner profits this year, confirming full-year operating guidance on Thursday of $9 billion for 2017.

Ford plans to cut $3 billion in costs this year and expects profits to rebound in 2018, driven by continued strengthen in the U.S. pickup truck market, the roll out of two new full-size SUVs and improving results at Ford Credit.

Ford's first-quarter adjusted pretax profits were down 42% to $2.2 billion, dinged by a $295 million recall expense disclosed in March covering nearly a half-million vehicles with fire risks and faulty door latches. This was the second time in less than a year that safety concerns have hurt the bottom line.

Operating profits for Ford's North American operations were $2 billion in the first-quarter, down 35% compared with the same period a year ago.

Margins also slipped in the first-quarter to 8.3% in the company's core North American business, from a lofty 12.9% a year ago. While transaction prices were up $1,971 per vehicle on strong demand for Ford's heavy-duty trucks, U.S. sales fell 4% in the first quarter and market share was down.

Higher interest rates and a steady decline in used-car values are also hurting vehicle affordability among U.S. consumers and making it more difficult for auto makers to continue offering the cheap leases that helped drive the recent U.S. sales boom.

In Europe, Ford posted a pretax profit of $176 million compared with $434 million in the same year-ago period, with exchange-rate and Brexit headwinds offsetting higher sales volumes.

In Asia Pacific, Ford recorded a $124 million operating profit, down from $220 million a year ago, as the auto maker continued to struggle with cooling new-car demand and the expiration of a tax subsidy on small-engine vehicles last year.

Ford's operating loss in South America continued, with the auto maker reporting $244 million in red ink for the just-ended quarter, compared with $256 in the same year-ago period.

Write to Adrienne Roberts at Adrienne.Roberts@wsj.com and Christina Rogers at christina.rogers@wsj.com

(END) Dow Jones Newswires

April 27, 2017 11:40 ET (15:40 GMT)