Ford’s Profit Takes Big Turn With Tire Recall
Hit by half a billion dollars in costs related to the massive Firestone tire recall, Ford Motor Co. said Wednesday that third-quarter profit skidded 7%, for its first quarterly earnings decline in more than four years.
Profit from continuing operations fell to $888 million, or 53 cents a share, in line with analysts’ forecasts. The results were down from $959 million, or 78 cents, a year earlier.
The decline was attributed to the auto maker’s continuing woes in Europe and the cost of replacing recalled tires, most of which equipped Ford sport-utility vehicles and pickup trucks.
“It’s fair to say if we exclude the costs associated with the Firestone recall, which were in the region of $500 million, the third-quarter earnings would have been a record,” Chief Financial Officer Henry Wallace said in a conference call.
Sales rose 7.5% to $40.1 billion from $37.3 billion.
Ford has been embroiled in the recall of the 6.5 million Firestone tires since it was announced Aug. 9. With Firestone unable to keep up with the demand for new tires, Ford scrambled to find replacements from competitors, and even purchased molds so that more replacement tires could be produced.
“Getting our customers onto good tires has been, and continues to be, more important than short-term profits,” Ford Chief Executive Jac Nasser said in a statement.
“This was a difficult quarter for our customers, our employees, our dealers and our shareholders and we are committed to quickly completing the Firestone tire recall,” Nasser said. “However, we also believe that these solid results demonstrate the underlying strength of our products and the company’s strong fundamentals.”
John Casesa, chief automotive analyst at Merrill Lynch in New York, agrees that Ford is essentially in solid shape.
“The company remains highly liquid with gross cash at $18.6 billion--implying excellent support for its high dividend payout and for new product investment,” Casesa wrote in a research note to investors Wednesday. “Given its good product line, fix-it plan for Europe, strong balance sheet and high yield, we contend Ford remains relatively attractive within the auto group.”
“Absent the Explorer problems, it would have been an impressive quarter,” Michael Bruynesteyn, an auto analyst with Prudential Securities Inc., told the Associated Press. “These guys are in pretty good position compared to their peers.”
In Europe, where Ford has lost market share and has been forced to lay off workers because of excess capacity, the company lost $221 million, up 42% from $156 million a year earlier. Ford also took a charge of $106 million in the quarter from its acquisition of British luxury sport-utility manufacturer Land Rover.
Elsewhere, Ford performed better. Worldwide vehicle sales were 1.7 million, up 3%, and retail sales in the U.S. were 1 million units, a record for the third quarter.
About half the $500-million cost of the Firestone tire recall resulted from the three-week shutdown of three truck factories to divert new tires to consumers who needed replacements, Wallace said. The stoppages at the factories, where workers continued to receive 95% of their pay, accounted for lost production of about 15,000 units of the Explorer and its twin, the Mercury Mountaineer.
Ford has said it will pay part of the cost of the recall, but Wallace would not give any specifics. The company expects recall costs in the fourth quarter to be less significant, he said, and should be able to make up much of the production of the idled plants.
Ford shares gained 63 cents to close at $25.06 on the New York Stock Exchange.
Ford’s results follow General Motors Corp.’s third-quarter report last week that profit fell 5.5% to $829 million in large part because of losses in Europe. DaimlerChrysler will report earnings Oct. 26. The German-U.S. auto maker has already said its American brands--Dodge, Chrysler and Jeep--will post a loss of about $531 million, offsetting profit at Mercedes-Benz.
