Ford posts First Quarter 2014 pre-tax profit of $1.4 billion, Net Income of $989 million; Global new product launches on Track +

The company’s pre-tax profit of $1.4 billion was $765 million lower than a year ago. After-tax earnings per share were 25 cents, excluding special items, 16 cents below a year ago. Net income for the quarter was $989 million, or 24 cents per share, a decline of $622 million, or 16 cents, from a year ago. Net income included pre-tax special item charges of $122 million for separation-related actions, primarily to support the European transformation plan.

The company’s results were adversely affected by several significant factors that were not representative of its underlying business run rate. In North America, these included warranty reserve increases for field service actions for prior models, including safety recalls and other product campaigns, and weather-related costs. For South America, these included balance sheet currency exchange effects.

In total, these factors reduced first quarter pre-tax profit by about $900 million, or the equivalent of 17 cents per share. They also account for a year-over-year decline in company pre-tax profit of $700 million. While similar factors could occur in the future, it is unusual for items like these to occur in this magnitude in the same quarter.

Among the business units, Asia Pacific reported a record quarterly profit, and North America and Middle East & Africa were profitable. Europe reduced its loss by more than half and South America incurred larger losses compared with a year ago. Ford Credit once again delivered solid results.

First quarter wholesale volume was up 6 percent and revenue improved about 1 percent from a year ago. The company had continued market share gains in Asia Pacific, including record market share in China.

Ford’s Automotive operating-related cash flow was $1.2 billion in the first quarter. The company ended the first quarter with Automotive gross cash of $25.2 billion, exceeding debt by $9.5 billion, and a strong liquidity position of $36.6 billion, an increase of $400 million from year-end 2013.

Although not yet included in the company’s total liquidity, Ford is in the process of amending and extending its revolving credit facility. The facility is expected to grow to about $12 billion from $10.7 billion after its anticipated completion at the end of this month. This will improve further the company’s strong liquidity position as it expands globally. Consistent with its capital and funding strategy, Ford plans to allocate $2 billion of the facility to Ford Credit to support its liquidity.

“We had a solid quarter, and we are on track with our most aggressive product launch schedule in our history,” said Alan Mulally, president and CEO. “Our One Ford plan continues to deliver as we serve customers in more markets around the world with a full family of vehicles committed to best-in-class quality, fuel efficiency, safety, smart design and value.”

In the first quarter, Ford increased its quarterly dividend by 25 percent and paid about $500 million in dividends.

AUTOMOTIVE SECTOR

Total Automotive first quarter wholesale volume increased by 6 percent from a year ago, while Automotive revenue was unchanged. The higher volume is more than explained by higher industry volumes in all regions except South America, improved market share in Asia Pacific and a favorable change in dealer stocks.

The decrease in operating margin and pre-tax profit for the first quarter is more than explained by lower results in North America and South America.

The company’s Automotive sector now has five reportable segments, up from four previously. The new segment of Middle East & Africa was formed to facilitate an increased focus on this important growth region. Total Automotive results are not affected by this change. The 2013 first quarter results of each of the five Automotive segments have been revised to reflect the new reporting structure.

“The underlying run rate of our business in the first quarter was strong,” said Bob Shanks, executive vice president and chief financial officer. “We are particularly encouraged by Asia Pacific’s record profit, driven by very positive customer response to our new products, underscoring the traction and success of our growth plans in what is now the largest market in the world. In addition, the improvement in Europe confirms the progress we continue to make toward achieving a profit in 2015.”

North America

North America results were driven by robust industry sales, a strong product lineup, continued discipline in matching production to demand and a lean cost structure, even as the company continued investment for future growth.

North America reported a pre-tax profit of $1.5 billion in the first quarter, a decline of $892 million from last year’s record profit. The results are more than explained by unfavorable market factors and higher costs. The higher costs are more than explained by $500 million related to warranty reserve increases for field service actions and weather-related costs, as previously noted.

Wholesale volume and revenue declined 2 percent and 5 percent, respectively, for the first quarter. The volume decrease is primarily explained by lower market share, partially offset by higher industry sales, including a U.S. SAAR of 16 million units that was 400,000 units higher than a year ago, and favorable changes in dealer stocks. The decline in revenue mainly reflects lower wholesale volume, unfavorable mix, lower net pricing and the adverse effect of a weaker Canadian dollar.

First quarter U.S. market share was 15.3 percent, down 0.6 of a percentage point from a year ago. The decline reflects planned reductions in daily rental sales and lower small car retail share. Total F-Series share was unchanged from a year ago.

For the full year, Ford continues to expect North America pre-tax profit to be lower than 2013 and operating margin to be in the 8 percent to 9 percent range.

South America

South America continues to execute the company’s strategy of expanding its product lineup and progressively replacing legacy products with global One Ford offerings.

South America reported a pre-tax loss of $510 million in the first quarter, a $292 million deterioration from the prior year. The decline is explained by unfavorable exchange, including the balance sheet effects described previously; higher costs, mainly associated with economics-related effects caused by high local inflation; and lower volume, mainly due to a weaker industry.

In the first quarter, wholesale volume and revenue decreased by 8 percent and 18 percent, respectively, from a year ago. The lower volume is more than explained by lower industry volume, reflecting a 200,000-unit decline from last year’s SAAR of 5.9 million units. The decline includes the impact of import restrictions in Argentina and lower production in Venezuela resulting from limited availability of U.S. dollars. The revenue decline is explained primarily by unfavorable exchange and unfavorable volume and mix, offset partially by higher net pricing.

For the full year, Ford now expects South America to incur a larger loss than in 2013. Based on present assumptions, the company expects the rest of the year to be about breakeven to a small loss.

Europe

Ford continued to implement its transformation plan for Europe in the first quarter.

Europe reported a first quarter pre-tax loss of $194 million, a $231 million improvement from a year ago. The improvement reflects lower costs, favorable market factors and favorable exchange. This was partially offset by lower joint venture results and royalties in Russia and Turkey.

In the first quarter, wholesale volume and revenue improved from a year ago, up 11 percent and 18 percent, respectively. The volume increase is more than explained by higher industry volumes, reflecting a SAAR of 14.5 million units for Ford’s Europe 20 markets, up over 1 million units, as well as favorable changes in dealer stocks and higher market share for Europe 20. Europe’s higher revenue mainly reflects the higher volume and favorable exchange.

Market share for Europe 20 in the first quarter was 8 percent, an increase of 0.3 of a percentage point from a year ago, reflecting improved share for Mondeo and Kuga.

Ford’s full-year guidance for Europe remains unchanged, with the region expected to improve pre-tax results compared to 2013. Ford continues to expect the region to be profitable in 2015.

Middle East & Africa

The new Middle East & Africa segment reflects Ford’s increased focus on this important growth region.

Middle East & Africa reported a profit of $54 million for the first quarter, a $7 million improvement from a year ago.

In the first quarter, wholesale volume and revenue declined from a year ago. The lower volume reflects lower dealer stock increases compared with a year ago. The revenue decline is more than explained by the lower volume and unfavorable exchange, primarily due to a weaker South Africa rand.

Ford’s full-year guidance for Middle East & Africa remains unchanged, with the region expected to be about breakeven.

Asia Pacific

Ford’s strategy in Asia Pacific is to grow aggressively with an expanding portfolio of global One Ford products with manufacturing hubs in China, India and ASEAN.

Asia Pacific reported a first quarter pre-tax profit of $291 million, an improvement of $319 million compared with a year ago, and a record for any quarter. The improvement is more than explained by favorable volume and mix and higher royalties from joint ventures. Higher costs, including investment for future growth, were a partial offset.

In the first quarter, wholesale volume was up 32 percent from a year ago, and net revenue, which excludes the company’s China joint ventures, grew 19 percent. Wholesale volume in China increased by 45 percent from a year ago. The higher volume in the region reflects mainly improved market share, as well as higher industry volume. Ford estimates the first quarter SAAR for the region was 38.9 million units, up 1.9 million units from a year ago, explained by China. Higher revenue is more than explained by favorable mix and higher volume.

First quarter market share in the region was 3.4 percent, 0.7 of a percentage point higher than a year ago. The improvement was driven by China, where Ford’s market share improved 0.9 of a percentage point to a record 4.5 percent, reflecting continued strong sales of EcoSport, Kuga and Mondeo.

For the full year, Ford now expects Asia Pacific to earn a higher pre-tax profit than a year ago.

Other Automotive

The first quarter loss of $222 million in Other Automotive reflects net interest expense and an unfavorable fair market value adjustment on the company’s investment in Mazda.

For the full year, Ford now expects net interest expense to be about $700 million, a $100 million improvement from prior guidance reflecting higher interest income.

PRODUCTION VOLUMES*

* Includes production of Ford brand and JMC brand vehicles to be sold by unconsolidated affiliates.

In the first quarter, total company production was about 1.6 million units, 46,000 units higher than a year ago. This is 3,000 units higher than Ford’s most recent guidance.

           The company expects second quarter production to be 1.7 million units, up 32,000 units from a year ago, more than explained by higher volume in Asia Pacific. Compared with the first quarter, second quarter production is up 87,000 units.

FINANCIAL SERVICES SECTOR

Ford Motor Credit Company

Ford Credit’s first quarter pre-tax profit of $499 million was largely unchanged from a year ago.

Ford Credit reported higher volume, reflecting increases in nearly all products globally, largely offset by unfavorable residual performance in North America.

For the full year, Ford now expects Ford Credit pre-tax profit to be about equal to or higher than 2013. This reflects improved financing margin performance.

OUTLOOK

ONE FORD PLAN

Ford remains focused on delivering the key aspects of the One Ford plan, which are unchanged:

“2014 is shaping up to be another solid year for the Ford Motor Company,” said Mulally. “Importantly, this year also is a critical next step in implementing our One Ford plan and delivering profitable growth.”