Ford's Q1 results will set tone for rough '17
Ford has already booked costs to launch the latest Super Duty truck, including expenses to retool the Kentucky Truck Plant and ramp up production, but the company’s first-quarter earnings will take a hit from higher product costs, including more expensive commodities. Photo credit: BLOOMBERG
DETROIT- — The Super Duty pickup is hauling in cash for Ford Motor Co., but the company’s bottom line is showing the effects of last year’s redesign of the big truck.
The automaker on Thursday will report first-quarter earnings that are expected to decline about 50 percent from a year earlier. Among other factors, executives have pointed to higher parts costs associated with some of Ford’s 2016 launches, including refreshes of the Escape and Fusion, a new Lincoln Continental and the first major redesign of the Super Duty since 1999.
While Ford has already booked the truck’s launch costs, including expenses to retool the Kentucky Truck Plant and ramp up production, its first-quarter earnings will take a hit from higher product costs, including more expensive commodities such as steel, aluminum and rubber, and more complex and costly parts such as digital cameras (the Super Duty has seven) and screens.
The automaker said last month in a regulatory filing that it would take a $295 million hit to its first-quarter earnings stemming from two recalls in North America, one involving engines that could catch fire and the other involving door latches.
Ford at the time expanded the door-latch recall to include an additional 211,000 vehicles.
Since 2014, the total number of vehicles Ford has recalled for various door-latch problems has topped 4 million.
The first-quarter charges come amid what’s shaping up as a down year for the Blue Oval.
Executives have telegraphed for nearly a year that Ford’s 2017 pretax profits could fall to $9 billion, down from the $10.4 billion it made in 2016.
Beyond product costs and other expenses, Ford this year will feel the effects of a cooling U.S. market.
Ford will also be investing heavily in what it calls “emerging opportunities” such as electrification, autonomous vehicles and new mobility services. It’s in the midst of spending $4.5 billion through 2021 on 13 new electrified vehicles. It recently agreed to invest $1 billion in artificial intelligence startup Argo AI over five years. And, Ford is expanding Chariot, a Silicon Valley shuttle service it acquired last year.
“We’ve been in business 114 years, and you have to make those investments for the future,” Ford CEO Mark Fields said this month at the New York auto show.
While it forecast lower profits this year, Ford sees a recovery in 2018 thanks to its core business.
“We do expect to continue to make cost efficiencies in the business, so that will help us,” Fields said. “Secondly, we’re going to have the benefit of new products, like the Lincoln Navigator, for the full year. And thirdly, we’ll have less supplemental depreciation for Ford Credit.”
Ford has forecast a profit for its Ford Credit arm of about $1.5 billion this year, down from $1.9 billion, because of lower auction values and a glut of off-lease cars.