Ford profits fall 35% in first quarter

Pricey recalls and other cost increases caused Ford Motor Co.’s first-quarter profits to fall 35 percent compared to a year ago, when the Dearborn-based automaker had its best financial quarter in company history.

Ford earned $1.6 billion in the first quarter of 2017, according to results reported Thursday by the company. Before taxes, the profit was $2.2 billion; that’s down 42 percent from its record-setting $3.8 billion pre-tax profit last year. Results were better than analysts predicted.

Executives attributed the lower first-quarter results to a $1.2 billion rise in costs for the automaker compared to the same period a year ago, which included a $253 million investment in new products, including trucks and SUVs like the 2017 Super Duty pickup and the refreshed 2018 F-150 that goes on sale this fall. The company also saw warranty costs leap $467 million, which included safety recalls that cost the automaker around $295 million. Ford’s bottom line also was hurt by an unfavorable exchange rate in the United Kingdom due to Brexit, as well as in other countries; and a drop in fleet sales.

But Ford remains on-track to make $9 billion this year, a $1.4 billion decline from 2016, executives said in a call with investors Thursday. The first quarter will have seen largest year-over-year drop, said chief financial officer Bob Shanks. Results for the remaining quarters should be either the same or slightly better than last year.

“That decline has happened this quarter,” Shanks said. “This is the quarter in which the full-year decline flows through to our full-year results.”

The company is currently investing billions of dollars in autonomous technology, electric cars and other new vehicles planned through the remainder of the decade and into the early 2020s. Investments include a five-year, $1 billion investment in artificial intelligence company Argo AI to develop the brains for Ford’s self-driving cars. Ford continues to invest in its autonomous vehicle development, which aims to have a fully driverless vehicle on the road by 2021.

Shanks and Mark Fields, Ford’s president and CEO, said the company is looking ahead to 2018, when the company expects profits to swing back up after the 2017 dip. New or refreshed vehicles to be introduced later in the year, including the all-new 2018 Expedition, drove up costs in the first quarter, but the company expects to see returns there starting in 2018.

“We are reallocating capital to fortify our core strengths, transform underperforming parts of our business, and investing aggressively but prudently in emerging opportunities,” Fields said Thursday in a call with investors. “Decision-making is being governed by where to play, where not to play and how to win.”

The company posted earnings per share of 40 cents, and first-quarter revenue of $39.1 billion, beating Wall Street forecasts, due to a favorable sales mix. Ford saw a strong performance in North America, the company said, where it made a $2 billion pre-tax profit.

Industry analysts with Everscore ISI said it is unclear how much of the first-quarter results will carry into the second quarter. They also questioned whether Ford would begin to spend the $2 billion operating cash balance from its automotive segment.

Meanwhile, Ford made a $176 million pre-tax profit in Europe, down from $258 million during the same period in 2106. Fields said the company will continue to play to its strength there with sport utilities, commercial vehicles and performance cars.

Fields said Ford will see bigger returns from Europe in coming years.

“Remember, we decided to stay in Russia... we’re seeing improvement in that Russia business,” he said. “So this is where we take a point of view in the future, we put a plan together it’s starting to bear fruit, and it’s helping our European business.”

The company lost $244 million and $80 million in South America and the Middle East and Africa, respectively; Ford’s Asia Pacific segment posted a $124 million pre-tax profit, down $96 million from a year ago.

Ford said losses on the scrapped San Luis Potosi, Mexico, plant will be $153 million, down from the $199 million projection the company said it would cost.

David Kudla, CEO and chief investment strategist with Mainstay Capital Management, said plateauing sales will begin to fall in 2017, which would hurt companies’ bottom lines, but regulatory changes from the Trump administration and strong truck and SUV sales could help companies remain healthy. He said Ford is reporting “solid” results, but said much remains to be seen this year.

“Their product lineup is very strong,” he said. “However, caution is warranted given industry headwinds.”

Amid news out of the White House on possible renegotiation of the North American Free Trade Agreement, Shanks said Ford thinks NAFTA has made the auto industry much more competitive.

“Could it be reformed? Sure,” he said. “It can be improved. It can be modernized, so we support that.”

Shanks said President Donald Trump’s proposed tax cut that would reduce the top corporate tax rates by 20 percentage points is “really positive” news.

Ford stock was down 1.7 percent in midday trading Thursday at $11.40 per share.

On Wednesday, Fiat Chrysler Automobiles NV reported a first-quarter net profit of 641 million euros ($698 million), a 34 percent increase from the same quarter in 2016, when the company made 478 million euros ($520 million). General Motors Co. is set to report its first-quarter results on Friday.

ithibodeau@detroitnews.com

Twitter: @Ian_Thibodeau