Ford Motor Co.'s net income rose slightly in the second quarter due to a better-than-expected tax rate and healthy financing-arm profits, but Wall Street reacted negatively to revised full-year guidance, sending the stock down roughly 2% in midday trading.
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The lower stock performance illustrates the challenges facing new Chief Executive Jim Hackett, who is trying to address concerns about the company's ability to weather softer conditions in the U.S. market.
The Dearborn, Mich., auto maker on Wednesday said the lower tax rate, strong pricing on pickup trucks and SUVs, and strengthening conditions for its Ford Credit lending arm led to a $2 billion net profit for the second quarter, a 4% improvement over the same period a year ago.
However, the company issued new 2017 guidance, indicating weaker pretax profits than originally forecast.
Ford is now projecting adjusted earnings per share between $1.65 and $1.85, equating to $7.8 billion to $8.7 billion on a pretax operating basis. That's below Ford's previous outlook of $9 billion for full-year 2017 and far lower than the $10.4 billion earned last year.
"We expect a negative reaction to the implicit reduction in pretax profit," said J.P. Morgan analyst Ryan Brinkman. "This also may amount to a bit of 'clearing the decks' following the recent change in leadership."
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Mr. Hackett was hired in May after the board ousted Mark Fields, who had delivered a string of healthy profits over a three-year tenure as CEO but failed to deliver a clear vision of how the company will confront a slate of changes threatening to reshape the auto industry. Ford's stock price also struggled under Mr. Fields, and analysts expressed concern about a weakening profit outlook.
A former office-furniture executive who until recently ran Ford's smart mobility unit, Mr. Hackett is spending his first 100 days on the job reviewing all corners of the auto maker's business in an effort to craft a comprehensive turnaround plan that will help steer the company through the U.S. auto industry's next downturn and speed development of new technologies, such as electric cars and autonomous vehicles. Company executives are expected to release details of the plan this fall.
Ford has already embarked on an aggressive cost-cutting strategy that should generate roughly $3 billion in savings this year. The efforts come amid a broader pullback in U.S. consumer demand as the U.S. auto industry's seven-year growth streak comes to an end, forcing car makers to respond with deeper showroom discounts and factory production cuts.
Mr. Hackett described the second-quarter performance as "solid" but added that "no one here is satisfied."
"We know we have a lot of work to do," he told analysts and reporters on the company's earning call Wednesday.
Ford's earnings report somewhat mirrored results delivered by General Motors Co. a day earlier, with results being almost entirely driven by its core North American operations. The company's performance outside the U.S. was just shy of break even in the second quarter with modest profits in Europe and Asia offsetting continued red ink in South America, the Middle East and Africa.
While overall demand is waning in the U.S. market, buyers continue to snap up pricey pickup trucks and sport utilities amid lower gasoline prices, a favorable development for Detroit auto makers that have a lock on the big pickup market and make a disproportionate amount of profit from vehicles like the F-150 or Explorer.
Ford's second-quarter adjusted earnings were 56 cents per share, exceeding analysts' estimate of 43 a share. Chief Financial Officer Bob Shanks largely attributed the beat to a lowering of the company's projected tax rate from 30% to 10% for the quarter.
Ford, anticipating revisions in the U.S. corporate tax code, changed the way it accounts for losses incurred by its overseas businesses, generating credits that will cut its full-year tax rate in half to 15%--a benefit for 2017 that won't re-occur in years to follow, Mr. Shanks said.
Pretax operating income fell 16% in the second quarter due to higher commodity costs, an unfavorable exchange-rate impact in China and Europe and one-time charges related to a pullback in small-car production, including the cancellation earlier this year of an assembly plant in Mexico.
Revenue was $39.9 billion for the April-to-June period versus $39.5 billion a year ago, despite weaker global volumes, including a 3% decline in new-car sales in the U.S. in the second-quarter and lower deliveries in Europe due to the changeover to a new Fiesta small car.
Ford Credit stood out as a bright spot during the quarter. The financing arm reported its best quarter since 2011 with operating profit up 55% to $619 million, lifted by better-than-expected values on used cars sold at auction and healthier consumer credit conditions.
North American operating profits were $2.2 billion, down $500 million from the previous year. Margins in the region also slipped in the second quarter to 9%, down from 11.3% in the same year-ago period and well below the 12.2% reported by General Motors Co. on Tuesday for its North American operations.
Ford's European operations posted a pretax profit of $88 million compared with $467 million a year ago, with earnings dented by lower sales and an unfavorable exchange rate due to the U.K.'s withdrawal from the European Union.
In Asia Pacific, Ford recorded a $143 million operating profit, up from a loss of $8 million in the same quarter of 2016, as sales and market share in China improved following a rocky start to the year.
Ford's operating loss in South America continued to narrow, with the auto maker reporting $185 million in red ink for the just-ended quarter, compared with $265 million in the same year-ago period.
Write to Christina Rogers at email@example.com
(END) Dow Jones Newswires
July 26, 2017 15:32 ET (19:32 GMT)