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Ford profit falls in third quarter on truck costs

Created: 10/24/2014 3:21 PM WNYT.com
By: DEE-ANN DURBIN

DEARBORN, Mich. (AP) — Ford's new aluminum-sided F-150 will be a lot lighter and more efficient when it goes on sale later this year. But for now it's a serious drag on profits.

Net income dropped 34 percent to $835 million in the third quarter, largely due to the cost of launching the pickup. The new F-150, which is 700 pounds lighter due to its aluminum construction, is scheduled to go on sale by the end of this year.

Ford has repeatedly warned investors that this year would be difficult financially. It's launching a record 23 vehicles worldwide, including the F-150 and the new Mustang sports car that went on sale during the third quarter. It's also building five plants in Asia and launching the luxury Lincoln brand in China.

Yet, investors keep showing signs of nervousness over the pickup truck gamble. After hitting a high of $17.84 in July, Ford's shares have steadily declined. After the earnings report, the shares were down 4.3 percent to $13.77 in midday trading.

The F-Series has been the best-selling vehicle in the U.S. for 30 years; changing its body from steel to aluminum could be a game-changer for the industry, but it could also hurt Ford's reputation — and profits — if the new material causes quality problems or doesn't meet buyers' expectations. Morgan Stanley analyst Adam Jonas estimates the F-Series accounts for 90 percent of Ford's global automotive profits.

Chief Financial Officer Bob Shanks acknowledged that in the short term, Ford won't be making the kinds of margins it usually sees on its pickups. The Dearborn and Kansas City plants won't be fully operational until the second quarter of 2015, he said, and margins historically improve over the life of the truck.

But Ford CEO Mark Fields downplayed concerns, saying the company remains on track to start selling the truck by the end of this year.

"Launches are a complex thing, but we are absolutely on plan with the launch and it is progressing well," he said. "We're exactly where we expected to be at this point."

Ford also cut back on current F-150 sales in order to preserve inventories while it readies the new truck. That hurt pretax profits in North America, which fell 39 percent to $1.4 billion. Sales in the region dropped 8 percent.

The company closed its Dearborn truck plant for five weeks during the quarter to change over to new equipment, contributing to $700 million in negative operating cash flow. Shanks said it was the first quarter the company has been cash flow negative since 2010.

Despite the bad news, Ford beat Wall Street's expectations for the July-September period. Without one-time items, Ford earned 24 cents. That beat Wall Street's expectation of 19 cents, according to analysts polled by FactSet.

Revenue fell 2.5 percent to $34.9 billion. That was better than the forecast of $33.7 billion.

Last month, Ford dropped its full-year pretax profit forecast to $6 billion, citing falling sales in South America and a $500 million charge for recalling 850,000 vehicles with defective air bags. That's down from $8.6 billion last year.

(Copyright 2014 by The Associated Press. All Rights Reserved.)

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