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Amid Slow Sales, Ford Sees Profit Dropping More Than Estimates

March 23, 2017
CEO Mark Fields has said profits will fall this year before rebounding in 2018 as Ford spends big to transform itself to take on interlopers such as Uber Technologies Inc.

Ford Motor Co. said its profit could fall by half in the first quarter, a bigger decline than analysts predicted, as the automaker scales back production amid a declining U.S. market and deals with rising costs.

First-quarter adjusted earnings per share may be in the range of 30 to 35 cents, Ford said in a regulatory filing ahead of an investor presentation by Chief Financial Officer Bob Shanks. The projection trails the 47-cent average estimate of analysts surveyed by Bloomberg and compares with 68 cents a year earlier.

Ford had predicted last year that its profit would fall in 2017. Its current projection for $9 billion in pretax profit for the full year compares with the $10.4 billion earned in 2016. The first quarter will be as bad as it gets for the company this year, Shanks said in a phone interview.

“When you think about the year-over-year decline on a full-year basis, going from $10.4 billion to $9 billion, that’s basically going to happen in the first quarter,” Shanks said. “That’s why we’ve got the gap and we think from this point forward the comparisons will be more in line with what we saw last year.”

Ford began the year projecting a 4% reduction in North American vehicle production in the first quarter, as U.S. auto demand slows following seven years of growth. CEO Mark Fields has said profits will fall this year before rebounding in 2018 as Ford spends big to transform itself to take on interlopers such as Uber Technologies Inc.

Ford fell as much as 2.3% and traded down 1.3% to $11.62 as of 9:56 a.m. Thursday in New York trading. The shares have slid about 4.2% this year.

Higher investment and commodity costs, slower sales primarily due to a pullback in deliveries to fleet customers and unfavorable exchange rates are among the factors Ford cited for its earnings slump in the first quarter.

Ford touched off skittishness among investors late last year by warning that falling used-car prices would impact its financial-services unit this year. Shares of Ford, General Motors Co. and Fiat Chrysler Automobiles NV fell earlier this week after Ally Financial Inc. warned profit growth may slow due in part to an expected 5% decline in used-car prices this year.

The performance of auto loans and leases will continue to deteriorate this year, as credit losses increase and used-car values fall, Fitch Ratings said Wednesday. The National Automobile Dealers Association’s Used Vehicle Price Index fell 3.8% in February from January, the eighth consecutive monthly decline and an 8% drop from a year earlier.

The impact of declining used car prices could hit Ford especially hard given the size of its in-house finance company, Morgan Stanley analyst Adam Jonas wrote in a March 20 note. Last year, the unit generated $1.9 billion in pretax profit, or 18% of the automaker’s full-year earnings before taxes of $10.4 billion.

“We see Ford as particularly vulnerable given the size of its Finco program relative to other” automakers, wrote Jonas, who rates Ford “underweight” and predicts its stock will fall to $11 over the next 12 months.

By Keith Naughton

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