Ford improves financial results in every region.
July 24, 2013
This morning Ford Motor Company announced a pre-tax profit of $2.6 Billion for the second quarter of 2013, with a total net income of $1.2 Billion. The results are $726 Million increase in gross profit from the previous year, with every region showing signs of financial improvement.
Read through the following press release for all of the details on Ford's second quarter earnings and their outlook.
DEARBORN, Mich., July 24, 2013 — Ford Motor Company [NYSE: F] reported second quarter 2013 pre-tax profits of $2.6 billion, reflecting improvement by all business units compared with a year ago. North America, the company’s largest region, set records for second quarter and first half pre-tax profits. Asia Pacific Africa, the company’s fastest-growing region, achieved its best-ever quarterly pre-tax profit. Ford Credit once again delivered solid performance, with pre-tax operating profit of $454 million, and South America returned to profitability.
Total company second quarter pre-tax profit of $2.6 billion, or 45 cents per share, was $726 million, or 15 cents per share, higher compared with a year ago. The second quarter profit reflected continued outstanding performance in North America, recovery in South America from the exchange-driven loss in the first quarter, very good progress in Europe in continuing to deliver the company’s transformation plan and the best-ever profit in Asia Pacific Africa. Net income for the second quarter of $1.2 billion, or 30 cents per share, was $193 million, or 4 cents per share, higher than a year ago.
Automotive operating-related cash flow was $3.3 billion, an increase of $2.5 billion compared with last year, marking the 13th consecutive quarter of positive performance. The company ended the second quarter with strong liquidity of $37.1 billion, an increase of $2.6 billion compared with the end of the first quarter of 2013.
“Our strong second quarter with improved results in every region around the world is another proof point that our One Ford plan is continuing to deliver and is building momentum,” said Alan Mulally, Ford president and CEO. “We remain absolutely committed to our plan of serving customers in all markets with a full family of vehicles offering the very best quality, fuel efficiency, safety, smart design and value. As we do, we are providing profitable growth for everyone associated with Ford.”
In the second quarter, the company settled $1.5 billion of pension obligations related to the U.S. salaried retiree voluntary lump sum program, with $2.7 billion settled since the inception of the program in August 2012. As a result of the second quarter settlement, the company recognized a special item charge of $294 million, reflecting the acceleration of unrecognized losses in the plan. The lump sum program is about 60 percent complete and concludes at the end of the year.
As a result of the strategic actions the company has been taking, along with recent increases in discount rates, the funded status of Ford’s global funded pension plans significantly improved as of June 30 compared with the end of last year.
Dividends paid in the second quarter totaled about $400 million.
Total Automotive second quarter wholesale volume and revenue increased by 16 percent and 15 percent, respectively.
The higher volume reflects improved market share in all regions and higher industry volume in all regions except Europe, as well as lower dealer stock reductions this year compared with a year ago. The growth in revenue reflects higher volume in all regions and net pricing gains everywhere except Europe, offset partially by unfavorable exchange in all regions.
First half volume and revenue both increased 13 percent compared with last year.
Building on its best-ever quarterly profit in the first quarter, North America again delivered strong growth in the second quarter. This is the fifth time in the last six quarters that North America achieved a pre-tax profit of
$2 billion or more and an operating margin of 10 percent or more. Second quarter pre-tax profit was $319 million higher than a year ago.
Second quarter results reflect improving industry sales and a healthy full-size pickup segment, along with Ford’s strong product lineup, U.S. market share growth including strong growth in East and West Coast markets, continued discipline in matching production to real demand and a lean cost structure — even as the company invests more in product and capacity for future growth. Wholesale volume and revenue each grew 14 percent in the quarter.
In the first half of the year, North America set an earnings record with a pre-tax profit of $4.7 billion, an increase of $628 million compared with the same period a year ago. North America’s operating margin was 10.7 percent, about the same as last year. Wholesale volume and revenue increased about 16 percent.
For full year 2013, Ford’s guidance for North America remains unchanged: The company continues to expect higher pre-tax profit compared with 2012 and operating margin of about 10 percent.
South America’s pre-tax profit in the second quarter was $146 million higher compared with the prior year. Wholesale volume and revenue increased from a year ago by about 24 percent and 28 percent, respectively.
The higher volume reflects favorable changes in dealer stocks, higher industry sales, which increased from a SAAR of 5.3 million to 5.8 million, and higher market share. South America’s growth in revenue was driven mainly by higher volume from new products and net pricing gains, offset partially by unfavorable exchange.
South America’s first half 2013 loss was $67 million, which is more than explained by the impact of the devaluation of the Venezuelan bolivar in the first quarter. Wholesale volume and revenue were both higher than last year.
For full year 2013, the company’s guidance for South America remains unchanged: The company continues to expect results to be about breakeven in an environment that remains challenging across the region.
Europe’s second quarter pre-tax results were $56 million better than a year ago and $114 million better than the first quarter of 2013.
“Europe is making very good progress in executing our transformation plan, which is focused on product, brand and cost,” said Bob Shanks, Ford’s chief financial officer. “Our strong cadence of new product introductions, matching supply with real demand and focusing more on retail customers will enable us to meet our goal of being profitable in Europe by mid-decade.”
In the second quarter, wholesale volume and revenue both improved about 8 percent. The volume increase reflects non-repeat of dealer stock reductions incurred in 2012 and higher market share; lower industry volume was a partial offset. During the second quarter, the SAAR for the 19 markets the company tracks declined from 14.4 million units a year ago to 13.6 million units. The increase in Europe’s revenue mainly reflects the higher volume.
The pre-tax loss for Europe was $348 million in the second quarter, and operating margin was a negative 4.6 percent — both improved from a year ago despite the lower industry and the restructuring costs associated with the company’s transformation plan. The $56 million improvement from a year ago is more than explained by favorable volume and mix, offset partially by higher structural costs, mainly accelerated depreciation and a non-recurring write-off related to facilities the company plans to close.
Europe’s first half loss was $810 million, and operating margin was negative 5.7 percent, both worse than a year ago, more than explained by the $291 million of restructuring costs.
In the second quarter, the company increased its passenger car retail market share of the five major European markets, consistent with the strategy to focus on retail sales and to reduce reliance on short cycle rental and dealer self-registration sales. In addition, dealer stock days supply of new vehicles at the end of the second quarter have been reduced and stocks of dealer self-registered vehicles were lower by about two-thirds compared with prior year. Going into the third quarter, retail order banks are about 50 percent higher than prior year.
The company continues to make progress on cost, including the plan to close three facilities and relocate production for a more efficient manufacturing footprint. Ford’s Southampton assembly plant and Dagenham stamping and tooling operations will close at the end of this week, and the company has completed the consultation process with unions at the Genk plant, which is scheduled to close at the end of 2014.
Special items in the second quarter include $442 million for worldwide separation-related actions, of which $419 million is related to separation costs for personnel located at the Genk and U.K. facilities scheduled to close as part of the transformation plan. The total of these separation costs is estimated at about $1.2 billion, all of which the company expects to incur by year-end 2014. The company expects about $800 million to be recognized in 2013, including the $419 million in the second quarter.
The full year 2013 pre-tax loss for Europe now is expected to be about the same as last year, or about $1.8 billion, compared with the prior guidance of a loss of about $2 billion. While the outlook for the business environment in Europe remains uncertain, data trends suggest that economic and industry conditions may have begun to stabilize.
The implementation of the One Ford plan is gaining momentum in Asia Pacific Africa with the region reporting its best-ever quarterly result in the second quarter with pre-tax profits of $177 million, an improvement of $243 million compared with a year ago. Asia Pacific Africa’s operating margin of 5.8 percent is an increase of 8.7 percentage points from a year ago.
In the second quarter, wholesale volume increased 27 percent from a year ago, and revenue, which excludes the company’s China joint ventures, grew 35 percent. The higher volume reflects mainly higher market share as well as stronger industry sales, which increased from a SAAR of 33.4 million to 35.4 million units for the 11 markets the company tracks. Unfavorable changes in dealer stocks were a partial offset.
“We are beginning to see the benefits of our aggressive investment strategy in Asia Pacific Africa, with an expanding portfolio of global One Ford products tailored for the region with manufacturing hubs in China, India and ASEAN,” said Shanks.
Asia Pacific Africa’s second quarter market share was 3.6 percent, one percentage point higher than a year ago and a quarterly record. The 38 percent improvement was driven by China, where Ford’s market share improved 1.5 percentage points to a quarterly record of 4.3 percent, reflecting mainly strong sales of the new Focus, Kuga and EcoSport.
The region’s first half profit was $183 million with an operating margin of 3.2 percent — both higher than a year ago. Wholesale volume and revenue also increased.
Given Ford’s strong first half performance and momentum in the region, the company now expects Asia Pacific Africa to be profitable for the full year.
The second quarter loss of $205 million in Other Automotive mainly reflects net interest expense, offset partially by a favorable fair market value adjustment on the company’s investment in Mazda.
For the full year, Ford now expects net interest expense to total about $800 million to $850 million. This is up from prior guidance of $750 million to $800 million, primarily due to the impact of rising interest rates on the market value of the company’s cash investment portfolio.