Ford Motor Company reported a third quarter 2013 pre-tax profit of $2.6 billion, $426 million higher than a year ago, while earnings per share was 45 cents, or 5 cents higher than a year ago. Net income for the quarter was $1.3 billion, or 31 cents per share — down $359 million, or 10 cents a share, compared with a year ago.
The decline in net income is due to a pre-tax special item on charges of $498 million, which included $250 million for separation-related actions, primarily in Europe to support the company’s transformation plan, as well as $145 million associated with Ford’s U.S. salaried retiree voluntary lump sum payout program as part of the company’s pension de-risking strategy.
marking the 14th consecutive quarter of positive performance, Ford’s automotive operating-related cash flow was $1.6 billion — a record for a third quarter. The firm ended Q3 with strong liquidity of $37.5 billion — up $400 million compared to the end of the second quarter of 2013.
“Ford’s record results in the third quarter show the strength of our One Ford plan around the world,” said Alan Mulally, Ford president and CEO. “Working together, we remain committed to serving customers in all markets with a full family of vehicles, offering the very best quality, fuel efficiency, safety, smart design and value.”
Ford contributed $1.1 billion to its global funded pension plans during the third quarter, which included roughly $700 million of discretionary payments to its U.S.-funded plans that are part of the automaker’s pension de-risking strategy.
In addition, Ford settled about $700 million of pension obligations related to its U.S. salaried retiree voluntary lump sum program during the quarter. Ford has settled a total of $3.4 billion since the program went into effect in August 2012. According to Ford, the lump sum program is about 80 % complete and concludes at the end of the year.
Lastly, dividends paid in the third quarter totaled about $400 million.
For the sixth time in the last seven quarters, Ford North America achieved a pre-tax profit of $2 billion or more and an operating margin of 10 % or more. Third quarter pre-tax profit was about equal to last year’s record profit. Favorable market factors — volume and mix and net pricing — were offset, for the most part, by higher costs, including investment in new products.
Third quarter results were driven by a strong industry and a robust full-size pickup segment, along with Ford’s strong product lineup, U.S. market share growth, 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 increased 13% and 12%, respectively, from a year ago. The volume improvement mainly reflects higher U.S. industry sales, favorable changes in dealer stocks and higher U.S. market share. Higher volume drove the revenue increase.
In the first nine months of the year, North America’s operating margin was 10.7%, five-tenths of a percentage point lower than a year ago, while pre-tax profit was about $7 billion, up about $600 million. Wholesale volume and revenue both improved 15% compared with 2012.
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%.
South America continues to execute the company’s strategy of expanding its product lineup while progressively replacing legacy products with global One Ford offerings. The company’s new products continue to perform well. Customer response to the Ranger pickup and refreshed Fiesta remains strong, and EcoSport and Fusion continue to be segment leaders.
South America’s pre-tax profit of $159 million in the third quarter was $150 million higher compared with the prior year thanks to market factors.
Wholesale volume and revenue increased strongly from a year ago, both up 22%. The higher volume reflects increased market share and favorable changes in dealer stocks. The growth in revenue was driven by the higher volume and net pricing gains, offset partially by unfavorable exchange.
South America’s first nine months volume, revenue, operating margin and profit all improved from a year ago.
The overall environment in South America remains uncertain, but given the company’s performance in the first nine months, Ford now expects South America to be about breakeven to profitable for the full year. This is an improvement from prior guidance of about breakeven.
In the third quarter 2013, Europe remained on track in executing its transformation plan.
Europe’s third quarter pre-tax loss of $228 million was $240 million better than a year ago, with all factors favorable, except costs associated with restructuring. Europe’s results have improved sequentially in each quarter this year.
In the third quarter, wholesale volume and revenue improved from a year ago by 5% and 12%, respectively, the second consecutive quarter of year-over-year top-line improvement. The volume increase reflects higher industry sales, lower dealer stock reductions than a year ago, and higher market share. The increase in Europe’s revenue mainly reflects the higher volume.
Europe’s operating margin for the first nine months was negative 5% and the pre-tax loss was $1 billion, both about equal to a year ago, despite about $400 million of restructuring costs incurred this year and lower industry volume. Volume and revenue were up slightly from a year ago.
The company now expects its full year loss in Europe to be less than in 2012. This is an improvement from prior guidance of a loss about the same as a year ago, reflecting the progress the company is making on its Europe transformation plan.
Asia Pacific Africa
Ford’s strategy in Asia Pacific Africa is to grow aggressively with an expanding portfolio of global One Ford products tailored for the region and with manufacturing hubs in China, India and ASEAN. Implementation of this strategy continues to gain momentum.
In the third quarter, Asia Pacific Africa reported its fifth consecutive quarterly profit with pre-tax results of $126 million, an improvement of $81 million compared with a year ago. Third quarter results reflect favorable top-line factors, offset partially by higher costs, as the company continues to invest for further growth.
In the third quarter, wholesale volume was up 35% from a year ago, and revenue, which excludes the company’s China joint ventures, grew 7%. The higher volume reflects mainly improved market share, with higher industry volume and favorable changes in dealer stock also contributing. Higher revenue primarily reflects favorable volume and mix.
Asia Pacific Africa’s third quarter market share was 3.7%, six-tenths of a percentage point higher than a year ago, setting a quarterly record. The improvement was driven by China, where Ford’s market share improved eight-tenths of a percentage point to equal last quarter’s record of 4.3%, reflecting mainly strong sales of the Kuga, EcoSport and Focus.
For the first nine months, volume, revenue, operating margin and profit all improved from a year ago.
Ford’s guidance for Asia Pacific Africa is unchanged. The region is expected to be profitable for the full year.
The $139 million loss during Q3 in the Other Automotive section 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 be at the lower end of its prior guidance of $800 million to $850 million.
In the third quarter, Ford produced about 1.5 million units, or 187,000 higher than in the third quarter of 2012, reflecting higher volumes in all regions.
The automaker expects total company production to be about 1.6 million units in the fourth quarter, or 102,000 units higher than a year ago. This includes a reduction of 15,000 units from the company’s prior guidance for North America.
Ford’s third quarter operating effective tax rate was about 33%. The company now expects its full year operating effective tax rate to be less than 30%, compared with 32% last year. This reflects a year-to-date tax rate of about 31% and a fourth quarter reduction in Ford Credit’s tax liability.
The Motrolix Take
Witness the One Ford strategy in action: Ford is firing on all cylinders in delivering notable improvements in its operations all over the world. A strong performance in North America, an improving Europe, and a combined profit from the regions outside North America are making The Blue Oval a force to be reckoned with.
And did we mention that besides the favorable results from Ford’s automotive operations, Ford Credit also remained solidly profitable?