Ford’s Third Quarter Is a Mixed Bag, But 2015 Looks Bright
Ford has been having a fairly good year, and is set for a giant 2015. But that didn’t stop Ford’s third quarter earnings from being a bit of a letdown, despite the fact that the release capped off another profitable month for the company and saw pre-tax profits of $1.2 billion.
While that sounds good on the surface, that $1.2 billion in profits boiled down to only $835 million in profits after taxes, and represented a mammoth drop of $1.4 billion compared to last year’s third quarter. After-tax profits dropped $437 million as well, in what was definitely a bit of a downturn considering Ford’s recent string of successes. The main reasons behind the drop in profits came down to a few factors, including lower sales volume in the North American market and higher warranty costs as a result of recalls.
Despite the downturn, Ford CFO Bob Shanks is confident that the company is primed for a huge year in 2015. “To me, the numbers are a reaffirmation of what we said at Investor Day at the end of September, and are completely consistent and in line with our outlook for the full year, which is $6 billion,” he told The Cheat Sheet on a call following the release of the company’s report. “It was generally very close to what people had been expecting.”
The fact that profits fell considerably year-over-year doesn’t necessarily mean that Ford has lost its step, as the company also has plenty of positive outcomes to highlight as well. One of those positives was more growth in the European markets — something that Ford has been targeting with much veracity — and also a profitable quarter in the Asia-Pacific markets, and particularly in China.
“We’re happy with China, and really happy with what we saw in western Europe,” Shanks said. “We had six to eight percent growth,” he added, “and it was very impressive how broad the improvement was.”
One of the big reasons profits took a hit was that truck manufacturing was actually shut down for a brief period in order to refit factory space for the all-new F-150, which will be made from aluminum. The company’s truck plant, located in Dearborn, Michigan is tied to a huge chunk of sales and revenue for Ford, as its F-150 pickup is a longtime best-selling vehicle, and a major revenue-generating force. Obviously, with the plant shut down and considerable investments being made into it, the company was going to take a hit.
The aluminum F-150 is a definite gamble on Ford’s part, but the company’s brass is confident that consumers will buy into the idea, especially considering how popular the pickup is. “I tell you, when you drive the vehicle, you feel like you’re driving a sports car,” Shanks says about the new F-150, which sheds a considerable amount of weight and gains a lot of ground in terms of fuel economy by switching from steel to aluminum.
Shanks also says that since the F-150 build-out tool was launched on the company’s website at the end of September, it has had half a million hits and nearly 200,000 customers get to the pricing stage, indicating incredibly strong interest.
One other interesting detail out of the investor’s call revolved around the idea of a Tesla-like vehicle, and the company’s plans to take on the project. “It’s consistent with our product philosophy”, CEO Mark Fields said, but refrained to go any further. That philosophy, tied in with the One Ford Mission, will likely pay off big in the next couple of years for Ford. A huge number of new international models, new markets, and a focus on technology and sustainability are playing right into what consumers want, and Ford’s plan looks to address all of those elements.
That philosophy, tied with the company’s optimism and expected growth in 2015, sets them up well going into the New Year in a month and a half. “We expect higher profitability, strong rates of growth, good margins, good cash flow… this is what this whole year has been about, sort of a step between 2014 and 2015, which is going to be very, very strong,” Shanks says. “I feel like we’re in a good place.”
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