Ford’s 1st-Quarter Net Income Soars 15% on Strong Truck Sales, Continued Cost-Cutting
Ford Motor Co. reported a 15% increase in first-quarter earnings as the nation’s No. 2 auto maker benefited from strong truck sales, continued cost-cutting and improved performance in Europe.
The record earnings--the firm’s eighth consecutive increase in quarterly profit--came despite sharply higher marketing costs. Increased rebates, an estimated average of about $1,100 per vehicle, were offset by $400 million in cost reductions.
Overall, Ford posted first-quarter operating profit of $1.69 billion, or $1.36 a share, compared with $1.47 billion, or $1.20, a year ago. Sales were $36.6 billion, down 2% from a year ago.
The operating results exclude a one-time gain of $16 billion, or $12.94 a share, for the recent spinoff of Associates First Capital. With the gain, Ford’s net profit for the quarter was $17.6 billion.
Profit from Ford’s automotive operations soared 23% in the first three months of the year, even though vehicle sales were up only 2% worldwide. This partly reflects increased sales of high-profit sport-utility vehicles such as the Ford Expedition, and the new Super Duty commercial pickup truck.
The financial performance was slightly better than analysts had expected. Still, the stock, which has surged in recent weeks, slumped in Thursday’s down market, closing at $49.69, off 19 cents, on the New York Stock Exchange.
Ford is the second of the Big Three auto makers to report earnings. Chrysler last week posted first- quarter earnings of $1 billion, up 2%. GM reports earnings today.
The auto industry is enjoying its fifth consecutive year of strong sales, and the expectation is that the annual volume of cars and light trucks will again hit the 15-million mark.
“We will get a downturn eventually,” said John Device, Ford’s chief financial officer. “But we don’t see it on the horizon.”
Still, the competitive environment has become increasingly intense. Auto makers have been forced to hold or lower prices on new models and offer hefty incentives on slow-moving vehicles.
Ford said its total marketing costs per vehicle were 10.9% of revenue in the first quarter, compared with 9.4% a year ago and 7.8% in the fourth quarter. The company does not break out average rebates for vehicles, but analysts estimated them at $1,100 to $1,200. Rebates are expected to increase this quarter.
The pricing pressures have forced Ford and its competitors to increase cost-cutting. Ford cut $3 billion from operations last year and set a target of an additional $1 billion this year. It has already achieved 40% of that through reduced spending on materials and manufacturing efficiencies.
The auto maker is also benefiting from increased sales of sport-utilities and pickups. Nearly 65% of Ford’s U.S. sales are light trucks. Some of the biggest, such as the Lincoln Navigator, yield profit of $10,000 each.
Despite the higher profit, Ford’s market share slipped from 25% last year to 24.5%. The drop partly reflects Ford’s decision last year to drop five unprofitable vehicles lines, including the Thunderbird and Probe sports cars.
“They pruned away the deadwood,” said Maryann Keller, an analyst at Furman Selz. “It was a good move.”
Ford earned slightly more than $1 billion in North America, down 1% from a year ago. But its once-troubled European operations continued a comeback with earnings of $230 million, up from $105 million.
