Ford Posts Second Quarter 2014 Pre-Tax Profit of $2.6 Billion
North America, Asia Pacific, Middle East & Africa, Europe and Ford Credit Profitable; Net Income of $1.3 Billion+
DEARBORN, MI -- July 24, 2014: Ford Motor Company :
“We are delivering strong results in a year of aggressive global product launches and difficult external conditions in many parts of the world – a tribute to the power of our One Ford plan and the Ford team around the world.”
Second quarter pre-tax profit of $2.6 billion, an increase of $44 million compared with a year ago; after-tax earnings per share of 40 cents, excluding special items; 20th consecutive profitable quarter Second quarter net income of $1.3 billion, or 32 cents per share, an increase of $78 million compared with a year ago; net income includes pre-tax special item charges of $481 million Year-over-year decline of 1 percent in wholesale volume and company revenue; market share higher in Asia Pacific, driven by record share in China All Automotive business units profitable and improved compared with a year ago, except for South America. Record quarterly profit in North America; record second quarter profit in Asia Pacific; first quarterly profit in Europe in three years Automotive operating-related cash flow of $2.6 billion, the 17th consecutive quarter of positive performance. Ford ended second quarter with Automotive gross cash of $25.8 billion, exceeding debt by $10.4 billion. Ford improves its outlook for operating-related cash flow due to its strong first half performance Ford Credit delivered solid results Ford affirms its 2014 pre-tax profit guidance of $7 billion to $8 billion in a period with an unprecedented number of global product launches. Ford expects the payoff from its investments this year will be a strong product lineup with higher volumes, revenue and margins in 2015 and beyond. See below for details:
|Financial Results Summary+||Second Quarter||First Half|
|2013||2014||B/(W) 2013||2013||2014||B/(W) 2013|
|Pre-tax results (Mils.)++||$||2,555||$||2,599||$||44||$||4,701||$||3,980||$||(721||)|
|After-tax results (Mils.)++||1,833||1,630||(203||)||3,475||2,649||(826||)|
|Earnings per share++||0.45||0.40||(0.05||)||0.86||0.65||(0.21||)|
Special items pre-tax (Mils.)
Net income attributable to Ford
|After-tax results (Mils.)||$||1,233||$||1,311||$||78||$||2,844||$||2,300||$||(544||)|
|Earnings per share||0.30||0.32||0.02||0.70||0.57||(0.13||)|
|Operating-related cash flow (Bils.)||$||3.3||$||2.6||$||(0.7||)||$||4.0||$||3.8||$||(0.2||)|
|Gross cash (Bils.)||$||25.7||$||25.8||$||0.1||$||25.7||$||25.8||$||0.1|
|Net cash (Bils.)||$||9.9||$||10.4||$||0.5||$||9.9||$||10.4||$||0.5|
See end notes on page 8.
The company’s pre-tax profit of $2.6 billion, excluding special items, was $44 million higher than a year ago. After-tax earnings per share were 40 cents, excluding special items, 5 cents below a year ago. Net income for the quarter was $1.3 billion, or 32 cents per share, an increase of $78 million, or 2 cents, from a year ago.
Net income included pre-tax special item charges of $481 million. These include the impairment of Ford’s equity investment in the Ford Sollers joint venture in Russia, reflecting the present outlook for the business, including a weaker ruble, lower industry volume and industry segmentation changes that negatively impact sales of Focus. Also included in special item charges are separation-related actions, primarily in Europe to support Ford’s transformation plan.
All Automotive business units contributed to the company’s pre-tax profit and all improved from a year ago, except South America. North America achieved record quarterly performance for pre-tax profit, and Asia Pacific achieved a second quarter record. Europe earned its first quarterly profit since the market dramatically declined three years ago. Ford Credit delivered solid results.
Second quarter wholesale volume and company revenue declined 1 percent year-over-year. The company achieved higher market share in Asia Pacific, driven by record share in China.
“Our One Ford plan continues to deliver, enabling us to reach our 20th consecutive quarter of profitability,” said Mark Fields, president and CEO. “Moving forward, our commitment is to build on this success by accelerating our pace of progress, while delivering product excellence and driving innovation in all areas of our business.”
Ford’s Automotive operating-related cash flow was $2.6 billion in the second quarter, its 17th consecutive quarter of positive performance. The company ended the second quarter with Automotive gross cash of $25.8 billion, exceeding debt by $10.4 billion. The company completed its corporate credit facility amendment and maturity extension in the second quarter. The facility is now $12.2 billion, of which $2 billion has been allocated to Ford Credit. The company ended the quarter with Automotive liquidity of $36.7 billion.
In the second quarter, Ford declared a dividend of $0.125 per share on the company’s outstanding Class B and common stock and paid about $500 million in dividends. This is the same level of dividend paid in the first quarter, and a 25 percent increase from the level of quarterly dividends paid in 2013. Ford is currently implementing the previously announced share repurchase program for up to 116 million shares, or almost $2 billion, to offset an up to 3 percent dilutive effect of potential convertible debt conversions and stock-based compensation.
Ford’s second quarter operating effective tax rate was 44 percent, reflecting calendarization effects, including the impact of regional profits. Ford continues to expect its full-year operating effective tax rate to be about 35 percent, assuming retroactive extension of U.S. research credit legislation in the fourth quarter. Ford’s third quarter rate is expected to be about equal to the second quarter rate. Total Automotive second quarter wholesale volume decreased by 1 percent from a year ago, and Automotive revenue decreased by 2 percent. The lower volume is more than explained by lower market share in all regions except Asia Pacific.
Operating margin was 6.6 percent, an increase of 0.2 percentage points from a year ago. Automotive pre-tax profit was $2.2 billion, a $66 million improvement, more than explained by lower costs and favorable market factors, partially offset by adverse exchange driven by South America.
“Our second quarter results demonstrate the underlying strength of our business,” said Bob Shanks, executive vice president and chief financial officer. “We are delivering strong results in a year of aggressive global product launches and difficult external conditions in many parts of the world – a tribute to the power of our One Ford plan and the Ford team around the world.” North America profit was driven by robust industry sales, a strong product lineup, continued discipline in matching production to demand and a lean cost structure, even as the company continues to invest for future growth.
North America reported a record pre-tax profit of $2.4 billion in the second quarter, an increase of $119 million from last year. This improvement was more than explained by lower costs and higher parts and accessory profit.
Wholesale volume and revenue declined 5 percent and 3 percent, respectively, from a year ago. The volume decrease is explained by lower market share and an unfavorable change in dealer stocks, partially offset by higher industry sales, including a U.S. industry seasonally adjusted annual rate (SAAR) of 16.9 million units in the second quarter that was 1.2 million units higher than a year ago. The decline in revenue is more than explained by the lower wholesale volume and a weaker Canadian dollar, partially offset by favorable mix.
Second quarter U.S. market share was 15.3 percent, down 1.2 percentage points from a year ago. The decline primarily reflects a planned reduction in daily rental sales; lower F-Series share as the company continues to balance share, transaction prices and stocks as it prepares for the new F-150; and lower Edge and Focus share.
For the full year, Ford continues to expect North America pre-tax profit to be lower than 2013 and operating margin to be in the 8 percent to 9 percent range. The company’s guidance includes 13 weeks of production downtime this year for the launch of the new F-150, including the summer shutdown at Ford’s Dearborn and Kansas City plants. Three weeks occurred in the first quarter, and at the Dearborn plant, eight consecutive weeks are planned beginning in late August. The Kansas City summer shutdown in July and a few individual down days in the second half make up the remainder of the downtime. South America continues to execute the company’s strategy of expanding its product lineup and progressively replacing legacy products with global One Ford offerings. It also is continuing to manage the effects of slowing GDP growth and lower industry volume in its larger markets, weaker currencies, high inflation, as well as policy uncertainty in some countries.
South America reported a pre-tax loss of $295 million in the second quarter, a $446 million deterioration from the prior year. The decline is primarily explained by lower volume and mix, unfavorable exchange and higher costs, partially offset by favorable net pricing.
In the second quarter, wholesale volume and revenue decreased by 22 percent and 30 percent, respectively, from a year ago. The lower volume is primarily explained by an 800,000-unit decline from last year’s SAAR of 6.1 million units. This includes the impact of the weakening economy in Brazil, import restrictions in Argentina and lower production in Venezuela resulting from limited availability of U.S. dollars. The revenue decline is explained primarily by lower volume and unfavorable exchange, partially offset by higher net pricing.
South America market share, at 8.8 percent, was down 0.3 percentage points from a year ago, more than explained by the model changeover of Ka and the phase out of Fiesta Classic.
For the full year, Ford now expects South America to incur a larger loss than it previously guided. Although Ford continues to expect higher market share and positive net pricing in the second half as it launches the all-new Ka small car, it now expects the rest of the year to be about breakeven to a loss due to lower-than-expected industry volumes and weaker currencies. The volatility in the region, including potential currency devaluations, adds uncertainty to short-term projections. Ford continues to implement its Europe transformation plan focused on product, brand and cost, and remains on track to achieve profitability in 2015.
Europe reported a second quarter pre-tax profit of $14 million, a $320 million improvement from a year ago. The improvement is more than explained by lower costs and favorable exchange. This was partially offset by lower results and royalties from Ford’s joint ventures, primarily in Russia, along with lower parts and accessories profit. Restructuring costs were lower than a year ago, primarily due to a reserve release this quarter associated with its Cologne investment agreement and non-recurrence of a facility write-off in Genk last year.
In the second quarter, wholesale volume was about unchanged from a year ago, while revenue improved 10 percent. Europe 20’s SAAR was 14.4 million units, up 700,000 units from a year ago. The increase was offset partially by industry declines in Russia and Turkey. Europe’s higher revenue mainly reflects higher volume in the Europe 20 markets and favorable exchange, partially offset by unfavorable mix.
Europe 20 market share, at 7.9 percent, was down 0.2 percentage points from a year ago, reflecting primarily a reduction in rental and fleet share, as well as adverse industry segmentation in passenger car. Europe 20 commercial vehicle share improved in the second quarter to 10.6 percent, up 0.5 percentage points from a year ago to Ford’s highest second quarter share since 1997; this was driven by Ford’s refreshed and expanded range of Transit products.
Ford’s full-year guidance for Europe remains unchanged, with the region expected to improve pre-tax results compared with 2013. Consistent with the normal seasonality of sales and production, Ford expects Europe’s second half loss to be higher than the first half loss of $180 million. Lower second half wholesale volumes of about 100,000 units include the effect of summer shutdowns in the third quarter and year-end shutdowns in the fourth quarter. In addition, Ford expects higher restructuring-related costs in the second half, including the non-repeat of a reserve release and higher launch-related costs with the start of production of the all-new Mondeo and the new Focus. Although the current environment in Russia is difficult, Russia remains a large and important market. Ford is working with its partner in Ford Sollers to develop actions to improve its business outlook. Ford’s strategy in Asia Pacific continues to be to grow aggressively with an expanding portfolio of global One Ford products with manufacturing hubs in China, India and ASEAN.
Asia Pacific reported a second quarter pre-tax profit of $159 million, an improvement of $29 million compared with a year ago, and a second quarter record. The improvement is more than explained by favorable volume and mix.
In the second quarter, wholesale volume was up 21 percent from a year ago, and net revenue, which excludes the company’s China joint ventures, grew 9 percent. Wholesale volume in China increased 26 percent from a year ago. The higher volume in the region primarily reflects higher market share and industry volume. Ford estimates the second quarter SAAR for the region at 39.6 million units, up 2.2 million units from a year ago driven by China. Higher revenue is primarily explained by higher volume and favorable mix.
Second quarter market share in the region was 3.7 percent, 0.4 percentage points higher than a year ago. The improvement was driven by China, where Ford’s market share improved 0.3 percentage points to a record 4.6 percent, reflecting continued strong sales of Mondeo, Fiesta and Kuga.
For the full year, Ford continues to expect Asia Pacific to earn a higher pre-tax profit than a year ago. Ford expects full year results will be strong for the region, with third and fourth quarter results down from second quarter. Volume improvements will be more than offset by higher costs as Ford continues to invest for future growth, including the five plants under construction in China and India and the launch of Lincoln in China this fall.
The second quarter loss of $171 million in Other Automotive primarily reflects net interest expense.
For the full year, Ford continues to expect net interest expense to be about $700 million.