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Recall, product launch costs hit Ford's Q3 profit

The carmaker said it still expected full-year earnings of $10.2 billion and a return to positive cash flow after burning through $2 billion in the third quarter
The carmaker said it still expected full-year earnings of $10.2 billion and a return to positive cash flow after burning through $2 billion in the third quarter

Ford has reported a more than 50% drop in third-quarter net income, saying its North American business suffered from lower sales, higher recall costs and a complicated introduction of a new pick-up truck.

The profit exceeded Wall Street expectations, however.

The carmaker said it still expected full-year earnings of $10.2 billion and a return to positive cash flow after burning through $2 billion in the third quarter.

Net income dropped to $961m, or 24 cents a share, from $2.2 billion, or 55 cents a share, a year earlier.

Excluding one-time items, Ford said earnings were 26 cents a share, beating the analysts' average estimate of 20 cents compiled by Thomson Reuters.

Third quarter revenue was $35.9 billion, down 6%, and North American operations revenue was $21.8 billion, down 8%.

Ford had signalled most of the major numbers at a September investors presentation, and the results released today were little changed.

The company's shares were down about 1% at $11.76 in premarket trading and have fallen 16.5% this year.

Ford's pre-tax operating margins were down by about half at 5.8% in North America and 3.3% worldwide.

“What’s happening to the company is what’s happening in North America,” Chief Financial Officer Bob Shanks told reporters.

Mr Shanks said three factors accounted for a $1.6 billion decline in Ford’s North American pre-tax profit: Costs of ramping up the new Super Duty pickup truck, which has an average price of about $62,000; a door-latch recall charge of $600 million recall; and lower profits from the company’s F-150 pickup truck.

Ford is cutting production of the F-150 in the fourth quarter and, in a new action, will idle one shift for a week at a plant in Kansas City, Missouri, to reduce inventories of the truck, Mr Shanks said.

The F-150 is Ford’s best-selling vehicle and one of its most profitable models.

The company said pre-tax profit in Europe jumped to $138m from $9m.

However, Mr Shanks said the falling value of the British pound would cost Ford $140m in the second half of 2015 and $600m next year.

Ford is 80% hedged against the currency for 2017, he said.

Income from Ford's Chinese joint ventures rose 26 percent to $320m. "China is very, very strong," Mr Shanks said.