Ford profits down 37% on weak China and sales in Europe

Canada's # 2 automaker posted surprisingly strong results in North America, selling a wider variety of expensive trucks and sport utility vehicles in its US market. This helped drive revenue up by about 3% to $ 37.6 billion, well above analysts' expectations.

Ford's shares, which have been trading for nearly a decade-long low, have risen 7% in the aftermarket, to $ 8.87, down about 35% for the year.

Bob Shanks, chief financial officer of Ford, told reporters on Wednesday that tariff costs and unexpected earnings erosion in Europe and China had prompted the company to pull out of its 2020 margin report. did not specify a new deadline for achieving this goal, but stated that Ford would continue to work in this direction.

Earlier this year, Hackett sped up the margin target of two per cent for two years, citing better-than-expected progress on his cost-cutting efforts. Ford posted an operating margin of 6.1% in 2017.

The decline in Ford's earnings in the third quarter is due to the growing impatience of investors and analysts regarding Hackett's turnaround plan. Some analysts have asked for more details on future cost reductions and a $ 11 billion restructuring previously disclosed.

Ford reported net income of $ 1 billion for the July to September period, as weak foreign performance outweighed gains in North America and the company's internal line of credit.

The company posted adjusted earnings per share of 29 cents for the third quarter, slightly ahead of analysts' average forecast of 28 cents.

Citigroup analyst Itay Michaeli said investors should welcome Ford's North American results in the third quarter, underscoring the strength of its leading position in pickup trucks. "It's clear that society still has a lot of work to do," he said. "But the quarter shows that the history of North America is unique."

Engaged 18 months ago at the helm of Ford, Hackett presented a turnaround plan focused on significant cost reductions, including impending and unplanned layoffs, as well as the move of underperforming units to more lucrative units, such as Ford truck lines. But the pressures on the global auto industry – some beyond its control – make its job more difficult.

In the United States, the most lucrative region for domestic automakers, consumer demand is cooling off after a period of several years. US tariffs on steel and aluminum have increased costs, as have parallel tariffs imposed by the Trump and Beijing administration.

Sales also slow in the world's largest auto market, China, which could record the first annual decline in sales for nearly three decades.

Ford reported a third quarter loss of $ 378 million in China, after a profit of $ 102 million a year earlier. Ford's performance was much worse than that of the whole sector in China, where sales rose 1.5% in the first nine months of the year, although they fell in recent years. month. Ford sales there were down 30% in the first three quarters.

Ford Tuesday appointed a new head of its business in China to lead the recovery efforts.

Shanks warned that sales in China could slow further in the coming months and next year. Ford is prepared for the slowdown by reducing vehicle production recently in order to align with declining consumer demand, he said.

The collapse of China nullified the growth of Ford's operations in North America. Ford continues to command higher transaction prices for its F Series pickup trucks: an average of $ 46,224 per truck in the third quarter, an increase of nearly $ 900 over last year. Ford's operating profit in North America increased 5% to $ 2 billion.

Ford Motor Credit operating income increased 13% to $ 678 million as the resale value of its leased vehicles outperformed expectations.

Outside of North America, Ford's regional businesses collectively lost about $ 560 million.

Losses in Europe increased to $ 245 million, up from $ 53 million a year earlier, as Ford faced higher foreign exchange costs and weaker results in Turkey and Russia.

Ford lost $ 152 million in South America, which is stable compared to the previous year, as improved sales in Brazil were offset by weakness in Argentina.

Although Ford did not provide details on the $ 11 billion restructuring announced in July, executives announced that they would repair or unload business units that would not get a sufficient return on investment. Some analysts believe that Ford's overseas operations will be the first victims of the restructuring.

Some analysts have criticized Hackett for not having enough details about the parts of the company he plans to abandon or repair.

On Wednesday, Hackett told analysts that Ford would provide more details "in the coming weeks in the months" on its turnaround plan.

"If you read any hesitation on my part, it's not that we do not know where we're going or if we do not know how to do it, it's a big undertaking."

Write to Mike Colias at [email protected]