This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (October 27, 2017).
Ford Motor Co. delivered a fresh reminder that -- amid all the talk about driverless cars and electric vehicles -- Detroit is a truck town.
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The No. 2 U.S. auto maker on Thursday reported a 63% third-quarter profit increase, a positive sign following a summer marked by management reshuffling, a renewed cost-cutting drive and continued malaise for the share price. Those results were fueled by sales of F-Series trucks, hulking vehicles that likely made up more than half of the $2 billion in operating profits Ford fetched over the period.
The average Ford pickup sold for $45,400 even with incentives factored in during the July through September period. That price firmly outpaces the $31,200 J.D. Power estimates is the average transaction price on vehicles sold in the U.S., and was also $2,800 higher than F-Series prices during the same period a year ago.
General Motors Co., which reported earnings Tuesday, also saw truck pricing increases, raking in $43,220 per Chevy Silverado or GMC Sierra sold in the third quarter, or nearly $1,300 more than the same period a year ago.
Ford's results highlight a persistent reality for car executives eager to showcase investments in future technology. The billions of dollars being spent on autonomous-vehicle research and making more affordable electric cars wouldn't be available if it weren't for brisk truck sales.
The truck momentum has been sparked by the redesign of Ford's so-called Super Duty lineup, a series of bulky work trucks that can cost more than $100,000. The auto maker put new versions on sale last fall, including the F-250, as U.S. buyers soured on bread-and-butter sedans and compact cars. It marked the first major redesign of the Super Duty in several years.
Ford also sells the F-150 truck for lighter-duty needs. The F-Series has been the best-selling vehicle in America since 1977.
Competitors, convinced that low gasoline prices and favorable economic conditions will remain, are angling to cut in on Ford's truck dominance. GM and Fiat Chrysler Automobiles NV are prepping redesigned models for introduction late next year, and those projects require billions of dollars and thousands of engineers.
Pickup trucks are a vital source of profit for the Detroit companies. While the Asian auto makers are formidable rivals in cars and crossover SUVs, none offer any serious challenge in the market for big pickups. Profit margins on those trucks -- used to haul recreational boats and on construction sites across America -- are typically far above 10% and can outpace luxury cars.
Ford needs to protect its turf. North America continues to fuel Ford's bottom line, contributing nearly all of its automotive operating profit as other regions net out at about break-even. Ford's operating margin rose to 8.1% in the third quarter, short of the 10% margins that Detroit executives expect to squeeze from core operations but substantially better than the same period a year ago.
Ford's overall profit increase during the quarter was also attributed to a lower tax rate and belt-tightening measures. The No. 2 U.S. auto maker by sales reported net income of $1.6 billion for the July through September period, and it raised its full-year earnings guidance.
The brighter outlook is a sign the company is optimistic about measures it is taking to improve its business, Chief Financial Officer Bob Shanks said during a round table with reporters. Ford posted adjusted earnings per share of 43 cents, better than the average analysts' forecast of 33 cents.
Revenue grew 1% to $36.5 billion, surpassing Wall Street expectations of $32.8 billion.
Ford cited early progress on new Chief Executive Jim Hackett's goal of slashing billions of dollars in engineering and manufacturing costs to improve Ford's "fitness" as it pivots to longer-term bets on electric cars and autonomous vehicles. Costs improved by about $700 million in the quarter.
"I would look at this as a first down payment (on) good strong cost management," Mr. Shanks said.
The company, however, posted a surprise loss in Europe related to continued fallout from Brexit in the U.K. market, and slimmer margins in China due to pricing pressure.
Pretax profit in the Asia-Pacific region more than doubled to $289 million, as cost-cutting lifted the company's profit margin there to 7.9%, from 4.3%. Ford also got a lift from its finance arm, where pretax profit edged up 6% to $600 million, despite analysts' forecast of a decline.
Mr. Shanks said the resale values on a wave of vehicles being turned in after their leases expire are holding up better than expected.
Write to Mike Colias at Mike.Colias@wsj.com and John D. Stoll at firstname.lastname@example.org
(END) Dow Jones Newswires
October 27, 2017 02:47 ET (06:47 GMT)