Strong SUV sales in Europe weren't enough to reassure tradersafter Ford's profit missed estimates. Shares fell sharply on Thursday. Image source: Ford MotorCompany.
What: Shares of Ford Motor Company (NYSE: F) dropped sharply on Thursday. Ford's second-quarter profit missed Wall Street estimates, and the company warned that its full-year guidance is at risk. Shares closed at $12.70, down 8.2%.
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So what: Ford's net profit was down 9% from its (extremely good) year-ago result. Ford said that rising incentives in the U.S. and some weakness in China were to blame, and that it was able to offset some of the drop with cost-cutting and a good result in Europe.
But traders quickly decided that Ford's earnings miss was a hint that the long streak of growth in the U.S. new-car market might finally be stalling. That would be bad news for the whole auto industry, especially Ford and its Detroit rivals. Ford's stock took the worst hit, but the others weren't spared: General Motors (NYSE: GM) shares dropped 3.2% despite a far more upbeat earnings report just last week, while Fiat Chrysler Automobiles' (NYSE: FCAU) stock fell nearly 5%.
Now what: CEO Mark Fields has continued a practice started by his predecessor, Alan Mulally: When Ford's management team sees signs of danger on the horizon, they tell investors -- usually in conjunction with an earnings report.That's what happened on Thursday, and speaking as a Ford shareholder, I think it's a commendable practice. But it means that Ford occasionally surprises investors on earnings days, and a fast drop in Ford's stock price is often the result.
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John Rosevear owns shares of Ford and General Motors. The Motley Fool owns shares of and recommends Ford. The Motley Fool recommends General Motors. 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.