Ford earnings fall to $1 billion in Q3

DETROIT – Ford said Thursday its third-quarter profit was $1 billion, a 55 percent decline from the same quarter a year ago but a performance that nonetheless exceeded Wall Street estimates.

The decline was expected because Ford’s third quarter in 2015, when it raked in a $2.2 billion profit, was its best ever.

On a per share basis, Ford earned 26 cents. Wall Street analysts forecast an average of 20 cents. In 2015’s third quarter, Ford made 45 cents a share.

Investor reaction was tepid. Ford shares fell 1.2 percent in trading Thursday to a close of $11.74.

The cost of launching the F-Series Super Duty pickup truck in Louisville, Ky., was one factor that reduced profits in North America. Ford also last month reduced its full-year 2016 profit forecast, saying an expanded recall of 2.4 million vehicles in North America for a door latch defect could cost $600 million.

Despite posting a healthy pre-tax profit of $1.26 billion in North America, Ford’s operating profit margin in the region fell to 8.4 percent from 12.3 percent a year earlier. Revenue fell 6 percent to $35.9 billion.

In Europe, Ford posted a pre-tax profit of $138 million. The company lost $295 million in South America, but earned $131 million in Asia Pacific, helped by the strength of its joint ventures in China.

The European profit came despite the negative impact of the United Kingdom’s vote to leave the European Union. Chief Financial Officer Bob Shanks said Ford expects the so-called Brexit to reduce its European profit by $140 million in the second half of 2016 and by another $600 million in 2017.

Ford reported negative cash flow of $2 billion, but Shanks said the company will likely see positive cash flow in the fourth quarter.

Another reason this quarter didn’t match 2015’s is that F-150 pickups were particularly profitable during the period last year because the company had just reached full production at its Kansas City, Mo., truck plant and nearly all sales of the trucks were to retail customers.

This year, a larger portion of sales were to fleet customers. Those transactions are less profitable.

That should be offset in the next several months by increased sales of the more-profitable Super Duty, which sells for an average price of about $62,000.

Ford Credit, the automaker’s finance arm, contributed $567 million in pre-tax profit, helped by a rich mix of pickup trucks and higher priced models, including Ford’s Lincoln brand. Ford Credit also offered fewer leases. Leases accounted for 18 percent of the company’s retail sales in the third quarter compared with an industry average of 29 percent.

A more cautious approach to leasing reflects an industry wide concern that a surge of off-lease vehicles coming back to dealers will drive down used car prices as those off-lease vehicles are sold at auction.