Ford earnings top Wall Street expectations; raises full-year forecast

Key Points
  • EPS: 56 cents per share adjusted vs. 43 cents expected, according to Thomson Reuters
  • Revenue: $39.9 billion vs. $37.1 billion expected, according to Thomson Reuters
Ford's second-quarter earnings beats Street expectations
Ford's second-quarter earnings beats Street expectations

Ford's second-quarter earnings topped analysts' expectations on Wednesday, helped by strong performance at its financing arm, higher sales of its F-Series and other trucks and a lower-than-expected tax rate.

The company raised its full-year earnings forecast to a range of $1.65 to $1.85 a share, on an adjusted basis. However, the improved outlook was also helped by the more favorable tax rate.

Ford said the company's tax rate would be about 15 percent for this year, but would return to roughly 30 percent next year. In 2016, the company's tax rate was about 31.9 percent.

Here's how the company did compared with what Wall Street expected:

  • EPS: 56 cents per share adjusted vs. 43 cents per share expected, according to Thomson Reuters
  • Revenue: $39.9 billion vs. $37.1 billion expected.

Ford shares were down 1.9 percent in early trading. The company's stock has underperformed the broader market and was down more than 7 percent since the start of the year, as of Tuesday's close.

The company, like rival General Motors, is still grappling with how to deal with falling consumer demand in the U.S. auto market. Ford has been able to offset this headwind so far because buyers have been favoring more profitable pickup trucks and SUVs.

Ford's F-Series line of trucks had its best second-quarter sales performance since 2001, gaining 7 percent over last year.

Meanwhile, the luxury Lincoln brand also performed well in both the U.S. and China. Despite declining demand for sedans and passenger cars in the United States overall, Lincoln sold more than 29,000 vehicles in the U.S. — its best performance in a decade. In China, Lincoln sales rose a record 84 percent.

"This quarter shows the underlying health of our company with strong products like F-Series and commercial vehicles around the world, but we have opportunity to deliver even more," said recently appointed CEO Jim Hackett. "The entire team is focused on improving the fitness of the business and smartly deploying our capital to improve both the top and bottom lines in the quarters ahead."

The company said second-quarter net income of $2 billion was flat with the year ago period. On a per share basis, net earnings rose to 51 cents from 49 cents.

On an adjusted basis, Ford earned 56 cents a share, which outpaced analysts estimates for 43 cents a share, according to Thomson Reuters estimates.

North America drove profits for the automotive business, though the Europe and Asia-Pacific regions were also profitable, the company said. Other regions in total broke even.

Pretax profit for Ford Credit was $619 million, a 55 percent increase over the same quarter last year.

The company reported lower adjusted pretax profit of $2.5 billion, versus $3 billion in the same quarter last year, citing factors such as higher steel costs, unfavorable exchange rates.

Average transaction prices rose nearly five times the industry average and incentives declined as a percentage of vehicle prices, even though incentives increased for the industry overall, the company said in a statement.

Hackett, who had run the company's mobility efforts, is tasked with reshaping the automaker in the face of declining sales across the industry in the U.S. and potential competition from deep-pocketed tech companies.

Industry outsider Hackett succeeded Mark Fields, who had risen through the ranks at the automaker before taking the helm.

While the company's full-year outlook is roughly on par with 2016's performance, Ford is expecting operating margins and operating cash flow for the automotive business to be lower than they were in 2016.

Barclays analyst Brian Johnson said he did not expect the company to reduce its operating income forecast for the year so early into Hackett's tenure.

"Overall, we still await Hackett's plan post the end of his first 100 days, and the updated strategy ahead (especially around improving capital efficiency) — which we believe could reinvigorate investor interest on the stock," Johnson said. "Yet, we'd view the guidedown, which is the first significant development of the new tenure, as one of two things — a. either a means of setting the bar lower so that expectations can be better met, or b. a sign that there is deeper work to be done at Ford."

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