Why Ford's Loss in South America Widened Last Quarter

By MarketsFool.com

Smaller Fords like the Focus have long been popular in South America. But a steep recession in Brazil, the region's largest market, has made profits hard to come by in recent quarters. Image source: Ford Motor Company.

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Ford Motor Company (NYSE: F) had said that its third-quarter profit would be much smaller than it had been a year ago, and it was right. The Blue Oval earned$957 million in net income last quarter, down 56% from $1.9 billion in the year-ago period.

Much of that drop had to do with events in North America, some of which were one-time factors. But a $295 million loss in South America didn't help. Here's the story.

Ford is trying to make the most of a tough market

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Ford's loss in South America was a significant decline from its $165 million loss a year ago. It wasn't a fluke: All of the key metrics were down year over year.

Image source: Ford Motor Company.

As CFO Bob Shanks explained during Ford's third-quarter earnings call, that drop was due to one big factor: Times are tough in places like Brazil. Shanks said:

Long story short, Ford is facing very tough economic conditions in the region's largest market. Shanks went on to explain how those factors played into Ford's wider loss.

Image source: Ford Motor Company.

He said, "Turning to the next page, looking at what's behind the $132 million decline in South America. It's a very, very similar pattern to what we showed you in the first and second quarters."

Shanks said during Ford's second-quarter call that Ford was fighting the effects of inflation and weakening local currencies, as well as competitors that had resorted to very steep discounting. Ford responded by focusing on its most profitable products in an effort to limit losses, but lost market share.

The story wasn't much different this time around, Shanks said. But he pointed out that Ford's team in the region was able to offset some of the losses with cost cuts:

Looking ahead: Reasons for optimism?

Shanks reiterated Ford's previous guidance for South America: It expects its full-year loss in the region to be greater than the $832 million it lost in 2015. But he hinted that the light at the end of the tunnel might be starting to come into view. Shanks stated:

How positive? We'll know a little more when Ford presents its 2017 guidance in January.

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John Rosevear owns shares of Ford. The Motley Fool owns shares of and recommends Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.