Beset by higher warranty costs and bad weather, Ford said Friday it earned first-quarter net income of $989 million, down 39 percent from a year ago and less than analysts’ estimates.
Ford earned 25 cents a share excluding certain items, trailing the 31-cent average estimate.
The company attributed the miss to an extra $400 million in warranty and recall expenses, a bigger loss in South America and bad weather in North America. Recall costs are rising across 2008 to 2013 vehicles, not from one specific model, said Chief Financial Officer Bob Shanks.
“We have seen more field-service actions over the last two years,” Shanks said.
Recalls have been increasing because “there’s more complexity in the vehicles, more technology in the vehicles. There’s better data and a better ability to very quickly identify issues. Everybody is generally reacting — certainly we do — as soon as we find a problem.”
The South America unit lost $510 million before taxes, compared with a loss of $218 million a year earlier. It recognized $310 million is costs to reflect the decline in Venezuelan currency. Ford said it will now lose more money in South America this year than the $34 million it lost last year, which is a change from its previous guidance. The region may break even for the rest of the year, Shanks said.
The company’s pretax operating profit fell 36 percent to $1.38 billion. A higher warranty reserve, weather-related expenses and currency effects reduced profit by about $900 million, Ford said. The coincidence of these items is unusual and not representative of the business, Ford said.
“It was a solid quarter,” Shanks said. “The underlying run rate of the business was much stronger than was indicated by the bottom line.”
The second-largest U.S. automaker is rolling out 23 new models worldwide this year and a record 16 in North America. That has required costly overhauls of factories, including 13 weeks of downtime at two U.S. plants that produce the F-150 truck, Ford’s most profitable product. The automaker has promised investors that the profit declines from this “building-block year” will result in better 2015 earnings.
“We’re a little surprised at the magnitude of the hit in 2014 from all the product transitions going on, but when you look out at 2015, they’re very well positioned,” said Michael Levine, a fund manager at Oppenheimer Funds Inc. in New York, who said Ford is one of the top 10 stocks in the $5.8 billion equity income fund he manages. “We’re very excited about the future, but clearly the next few quarters could be messy.”
In the first quarter, Ford had pretax operating income in North America of $1.5 billion, down from $2.4 billion last year. Ford’s U.S. sales fell 2.8 percent to 580,260 vehicles in the first quarter, while its market share fell to 15.5 percent from 16.2 percent a year earlier, according to researcher Autodata Corp.
The most crucial new model introduction is the F-150 pickup, which the company has said it will begin selling in the fourth quarter.
The truck sheds as much as 700 pounds to improve fuel economy, mostly by using aluminum instead of steel in its body. In 2013, Ford’s F-Series truck was the top-selling vehicle line in the U.S. for the 32nd consecutive year, with sales rising 18 percent to 763,402. That helped drive Ford’s North American pretax profits to a record $8.78 billion last year.
“Ford’s quarterly numbers this year are going to be soft and unpredictable because of the product changeovers,” Levine said. “The question is when do investors in the market begin to look beyond that to 2015 ... ?”