published Oct 27th 2016, 6:36 am, by Keith Naughton

(Bloomberg) —
Ford Motor Co. posted third-quarter profit that fell by more than half, buffeted by a slowing U.S. market and higher spending for its premier pickup truck model.

Net income dropped to $957 million from $2.19 billion a year earlier, Ford said in a statement Thursday. The decline, while substantial, was less than analysts predicted as the automaker reduced some marketing costs. Profit excluding some items was 26 cents a share, compared with the 20-cent average projection of analysts surveyed by Bloomberg.

The plunge in profit came in a rare quarter when Ford had negative cash flow of $2 billion. It’s spending big on its aluminum-bodied Super Duty pickup and to transform itself into a mobility company that can take on tech interlopers like Uber and Google. Chief Executive Officer Mark Fields has said profit would fall this year and in 2018, and investors pushed Ford shares down 16 percent this year. The stock slipped less than 1 percent in early trading.

“We’re going to stay real focused on putting out a great product, running a responsible business and growing in emerging mobility areas,” Fields said in an interview with Bloomberg Television.

The better-than-expected results in the third quarter may be fleeting because cost cutting and market expense reductions won’t be repeated in the year’s final three months, Ford said. The company reiterated its guidance for pretax profit this year of about $10.2 billion, and said it spent $600 million to recall faulty door latches, $30 million less than projected.

Lower Profit

The profit plunge came as the automaker trimmed production amid slower growth in the U.S. market. The company books revenue when it ships cars and trucks to dealers, not when they are actually sold to customers. There were also glitches in the manufacturing roll out of Ford new Super Duty, a highly profitable model.

“We have had some supplier issues,” Chief Financial Officer Bob Shanks told reporters at Ford’s headquarters in Dearborn, Michigan, without specifying the problems. “There’s never a perfect launch. These are very complicated vehicles with thousands of parts coming together.”

Ford expects the operating cash flow to turn positive again this quarter, he said.

Differing Fortunes

Ford’s fading fortunes contrast with General Motors Co., which reported record third-quarter net income of $2.8 billion Tuesday, and Fiat Chrysler Automobiles NV, which had a 29 percent increase in earnings in the quarter and raised its profit forecast for the year to at least $6.3 billion.

Even GM’s strong quarter couldn’t prevent its shares from declining, as investors push down auto stocks on concern that industrywide U.S. sales are about to plateau after a record six years of gains.

Ford’s U.S. light-vehicle sales fell 6.7 percent in the quarter to 632,123 from 677,163 a year earlier, according to researcher Autodata. To reduce rising inventory, the Dearborn, Michigan-based automaker temporarily shut five plants this month. In July, Ford said it would reduce North American factory output by 10 percent in the third quarter to 710,000 cars and trucks.

Regional Results

Fields, in the interview, took heart from Ford’s improved performance in several regions.

“In Europe we have very healthy improvement in our profitability,” Fields said in the interview. “It was our sixth quarter of profitability in a row, and we’ve actually made over a billion dollars in Europe this year” and had record earnings in Asia.
Automotive revenue fell to $33.3 billion, a smaller decline than analysts’ average estimate of $33.1 billion. North American pretax income was $1.3 billion, down from $2.9 billion a year earlier. Revenue for the region fell 8 percent. Europe pretax profit of $138 million was the best third quarter since 2007. Ford’s European sales rose 6.7 percent this year through September to 1.04 million vehicles, the biggest gain since 2009. Britain’s decision to leave the European Union will cost Ford $200 million this year and $600 million next year, Chief Financial Officer Bob Shanks said. In the Asia-Pacific region, pretax profit was a record $131 million, up from $109 a year earlier. Ford sales in China grew 11 percent this year through September to 791,309 vehicles.
“Over the next few years, Ford won’t report horrible numbers, but it’s not attractive for investors,” said David Whiston, an analyst for Morningstar Inc. in Chicago, said before the report was released. “The move to aluminum on the F-150 truck is great from a technology and fuel economy point of view, but it seems like they’re not getting the profitability the Street had hoped for.”

To contact the reporter on this story: Keith Naughton in Southfield, Michigan at knaughton3@bloomberg.net To contact the editors responsible for this story: Kevin Miller at kmiller@bloomberg.net John Lear

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