Ford Motor Company Loses 37% of Revenue in China – The Fool Motley

Ford Motor Company (NYSE: F) reported net income of $ 991 million in the third quarter, down 37% from the third quarter of 2017, primarily due to lower sales and higher costs in China. Revenues of $ 37.6 billion were up about $ 1.1 billion from last year, thanks to improved improved product mix, particularly in North America.

Ford slightly changed its guidance for the year, but maintained the revised earnings target for the year that was set in July.

In the United States, sales of the large and highly profitable Ford Expedition increased by 35.6% in the third quarter, helping to maintain Ford's strong North American margin. Source of the picture: Ford Motor Company.

The raw numbers

Here are the key figures of Ford's third quarter results for 2018.

Data Source: Ford Motor Company. EBIT is earnings before interest and taxes. "Adjusted" figures exclude the effects of single items. In the third quarter, Ford incurred non-recurring expenses totaling $ 231 million, primarily related to employee departures. "Sold vehicles" are wholesale sales and are rounded to the nearest thousand. ppts = percentage points.

The Ford district in a nutshell

Ford has a job to do and the company knows it. Its operations in Europe, South America and more specifically in China all posted losses in the third quarter. All need new products and a major restructuring.

The good news is that these products are coming in and that the restructuring work has begun, although it is too early to say when these efforts will produce concrete results. Meanwhile, Ford's business continued to perform well: North America, Ford Credit and the Asia-Pacific region (excluding China) all posted strong results.

How Ford's business units behaved in the third quarter

Here is an overview of the performance of each of Ford's business segments. Note that all financial results in this section are presented on the basis of EBIT, unless otherwise indicated.

North America: Ford achieved a $ 2 billion EBIT in North America, compared to about $ 1.9 billion in the third quarter of 2017. Ford sales in the United States fell 3.7% during the quarter, as much because of the fire of a supplier who stopped the production of trucks earlier in the year. However, Ford was still able to generate good results with its high-margin trucks and large SUVs, which helped maintain strong earnings. Ford's EBIT margin in North America, a widely observed figure, was 8.8%, about the same amount as it was a year ago.

South America: Ford lost $ 152 million in South America, down 2 million from a year ago. The significant price gains were more than offset by the costs of inflation and adverse exchange rate movements. Chief Financial Officer Bob Shanks said Ford was at the beginning of a major "reshuffle" of its South American operations, but had no details or timelines to share.

Europe: Ford lost $ 245 million in Europe, up from $ 53 million a year ago. The story is not terrible: Ford is launching a brand new Focus in Europe; Start-up costs and limited supplies of the big-sales model were on the rise, as well as exchange rate declines and weak markets in Turkey and Russia.

Middle East and Africa: Good news: Ford's small unit in the Middle East and Africa posted a profit of $ 47 million, up from a loss of $ 56 million a year ago, despite lower revenues lower sales volumes. Costs are down, the mix of products is improved and prices are high.

Asia Pacific: The Asia-Pacific division of Ford has lost $ 208 million, a dramatic drop from a profit of $ 314 million recorded a year ago. Most of the story is China, where Ford sales have declined 37% in the third quarter. That alone explains 480 million dollars of the decline. Ford has launched a major restructuring in China, a top priority for its CEO, Jim Hackett, but it will probably take several quarters to achieve significant results.

Mobility: Ford's mobility sector, which includes autonomous vehicles and Ford Smart Mobility initiatives, lost $ 196 million from $ 72 million last year. The larger loss represents increased investments – an additional $ 58 million invested in Smart Mobility and an additional $ 66 million in autonomous vehicle development compared to the third quarter of 2017.

Ford CreditFord's captive earnings before tax were $ 678 million, its best quarterly result in seven years, and an increase of $ 78 million from last year. Much of the increase is due to higher auction values ​​for rented vehicles returned to Ford and a good increase in volume. The leasing penetration rate of 21% remains well below the industry average of 29% and credit quality remains high. Good news all around.

Debt and liquidity

Ford closed the third quarter with $ 23.7 billion in cash available for its automotive sector, down from $ 26.5 billion at the end of 2017, but is a sufficient reserve. It had $ 11 billion in additional available credit lines, for total liquidity of $ 34.7 billion.

On the other hand, it had a well-structured long-term debt of $ 15.3 billion attributable to its automotive business, down $ 16.5 billion at the end of 2017.

Looking to the future: Ford's advice

Ford has made two minor updates to the revised guidelines issued after the second quarter. It is now expected that the annual results in South America will be about the same as in 2017, where it was already looking for a slight improvement and is now planning to pay a rate of return. adjusted effective tax of about 10%, compared to 13% in its previous forecasts. .

Note: Ford has maintained its profit target. It still provides adjusted earnings per share for the full year between $ 1.30 and $ 1.50. In the first three quarters, Ford earned one dollar a share on that basis.