Ford Profitability Slides, Earns $2.4b Anyway

by Edward Niedermeyer

Updated: March 6th, 2023 Published: July 26th, 2011

Ford’s Q2 results [ Presentation in PDF here] were mixed, as deliveries and revenue improved (7% and 13% respectively, compared to Q2 2010) but profitability slipped, but the automaker still ended the quarter with $2.4b in profit and $2.3b in operating cash flow. Debt was reduced by $2.6 from the first quarter of this year, and total Automotive debt landed at $14b, while gross Automotive cash landed at $22b. So, what happened to Ford’s operating profit margin?

Ford’s overall US market share was up considerably in the second quarter, but retail share saw a slower improvement to 14.3%, helping to explain some of the weaker profit.

Still, North American operations were up enough to overcome a weaker profit margin, and delivered a slight improvement in pre-tax results compared to Q2 2010.

And at the end of the day, North America is still Ford’s bread-and-butter, earning the lion’s share of pre-tax profits. South America saw pre-tax results drop by $18m, while Europe saw operating margins fall by more than 50%, en route to a weak $176m pre-tax profit. Meanwhile, huge costs and a weak market in Ford’s Asia-Pacific region saw pre-tax profits fall to just $1m, a huge decline from the $113m earned in Q2 2010.

On the financial services front, Ford’s profit also showed signs of slowing, as pre-tax profits fell by nearly $300m, to $604m. Volume was flat and margin was up by just $40m, leaving Ford Credit’s results vulnerable to credit losses of $130m and lease residual losses of $125m.

Going forward, Ford expects the global economy to continue to grow by around 3%, despite challenges in Europe, Japan and the US. For still assumes the US market will hit at least 13m units, an assumption that is just a little bit risky. Increased structural and commodity costs are expected to be $2b higher than previously estimated, but it estimates operating margins and cash flow to remain on track. Ford’s already increased prices twice this year to make up for increased commodity prices, which seem to be hitting the Blue Oval especially hard. How the firm plans to bring back profitability in the face of these rising costs isn’t entirely clear, but with volume up and pricing remaining strong across the industry, at least the timing is good. Besides, $2.4b in profit ain’t all that shabby itself.

#Ford #HighFinance #Industry #Sales

Edward Niedermeyer

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Acuraandy on Jul 26, 2011

I would attribute the slight down-tick in profits to the discontinuation of the Panther body and a shortage in red paint sigment or whatever...

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- NulloModo on Jul 26, 2011
  
  You may be onto something with the platform shifts. The new F-150 engines are likely more expensive to produce than the old ones, the new Explorer probably costs more to build than the old Explorer, and the ancient Panthers are starting to fade away. Milking paid off platforms was likely good for profitability, but it was necessary to modernize the lineup for future marketshare and profits.
  
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- Highdesertcat on Jul 26, 2011
  
  @NulloModo Actually, I was surprised that profitability slid. I really expected Ford to do a little better, overall. North America really is Ford's bread and butter and with the resurgence of Ford sales in most markets I had Ford pegged for at least $3B, even with the higher cost of goods and materials. I watched Alan Mullaly's interview on Bloomberg this morning at the airport while waiting to catch a flight home and it is clear to me that the UAW contract negotiations are going to weigh heavily on Ford's future profitability. Mulally said he talks about it every day with his management team. What I'm thinking is that the UAW will probably hit up GM first, (can't strike there), and maybe even finagle a separate deal with Fiatsler, (it would be foolish to strike yourself), but Ford is going to be the crown jewel that the UAW will squeeze like a sponge (nothing to stop the UAW from calling a strike at Ford). I'm inclined to agree with the concept that if Ford wants greater profits they've got to move more production to Mexico. Their Mexico operations are a cash cow. Their UAW/CAW operations not so much.
  
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- Scoutdude on Jul 27, 2011
  
  While it has been over a year since the Panther was officially canceled, the first time, they are still rolling off the assembly line, faster than they have in years, and will continue to roll off the line for a few more weeks.
  
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Morea on Jul 27, 2011

Are we sure that both companies define "research and development" in the same way? Are the R&D tax adjustments the same in Japan and the US? I read a statement once that in order to reap tax benefits US companies use the costs of market research as part of their R&D totals. (Is that true?) Popular color choice is likely not what most people consider automotive research and development. Though there may be standards on what may be called R&D are they faithfully followed? (GAAP anyone?)

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