Ford's Stock Takes Another Hit on Revised Guidance

By Christina Rogers Features Dow Jones Newswires

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 2.5% in mid-morning 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, forecasting full-year adjusted earnings per share between $1.65 and $1.85 with the mid-range roughly in line with last year's results. That equates to $7.8 billion to $8.7 billion on pretax operating basis, below the previous outlook of $9 billion for the full year.

Ford's stock was trading at just under $11 a share in mid-morning trading, down 2.5% from Tuesday's close in a market that was up overall.

"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 the 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 an expected downturn in U.S. auto-industry sales while speeding development of new technologies, such as electric cars and autonomous vehicles. Company executives will reveal details of the plan this fall.

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 core North American performance.

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, beating analysts' estimates of 43 cents a share. Chief Financial Officer Bob Shanks attributed the beat to a lower projected tax rate due to changes in the way Ford accounts for losses incurred by its overseas operations.

Operating income fell 16% to $2.5 billion in the second quarter due to higher commodity costs, unfavorable exchange rates in China and Europe and charges related to a pullback in small-car production, including the cancellation of a new assembly plant in Mexico earlier this year.

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.

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.

Ford Credit had 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.

In Europe, Ford 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 Brexit.

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 during the quarter.

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 christina.rogers@wsj.com

(END) Dow Jones Newswires

July 26, 2017 11:08 ET (15:08 GMT)