Product, prices power Ford profit
Ford is gaining sales of its higher trim lines, such as Titanium and RS models, CEO Mark Fields said. A 2017 Ford Edge Titanium is shown.
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DETROIT -- Ford Motor Co.'s push to keep production in line with demand and increase transaction prices helped it sustain near-record operating profits in 2016, executives said last week.
"We had a very, very strong performance on [product] mix," CFO Bob Shanks said as Ford released its earnings.
Ford reported a fourth-quarter net loss mainly due to accounting changes, but it finished 2016 with a $10.4 billion pretax profit, down slightly from record results in 2015.
In the fourth quarter in North America, average retail transaction prices rose by $1,400 per vehicle, Ford said in a statement. CEO Mark Fields said the increase "reflects a very deliberate and successful strategy to strengthen our brands." Ford's incentives in the quarter rose 11 percent, compared with an industry average of 16 percent, he said.
Fields said Ford is gaining sales of its higher trim lines, such as Titanium and RS models, as well as the Vignale upscale trim in Europe. He also said the transaction prices for F-series pickups rose by $1,300 in 2016.
Ford's fourth-quarter pretax profit was $2.1 billion, down $500 million because of a North American reduction in inventory and unfavorable conditions in the Middle East and Africa, and Asia Pacific. Its fourth-quarter net loss of $800 million compared with a $1.9 billion profit a year earlier, the company said in a statement.
Ford took a $3 billion fourth-quarter hit because of the way it accounts for pensions and a $200 million charge for canceling its small car plant in San Luis Potosi, Mexico, a move that followed criticism from then-President-elect Donald Trump. The automaker said it doesn't expect any additional charges related to the aborted facility.
The automaker's full-year net income of $4.6 billion was down $2.8 billion from 2015. For the full year, Ford posted an automotive operating margin of 6.7 percent, down from 6.8 percent in 2015. Its total company revenue of $151.8 billion was up $2.2 billion from 2015.
Ford's 2016 earnings were driven by a strong performance in North America, where it posted a $9 billion pretax profit, down $344 million from last year's record earnings. It posted a 9.7 percent operating margin in the region, driven by strong pricing for some of its most profitable vehicles, including its F-series pickups and SUVs. Ford's margin in North America in 2015 was 10.2 percent.
Ford posted a record $1.2 billion pretax profit in Europe, including a record 4.2 percent operating margin. The automaker expects to make its third consecutive profit in Europe in 2017, although it projects that the numbers will fall from 2016. Its $627 million pretax profit in Asia Pacific was its second-best result there.
For the year, the automaker lost $1.1 billion in South America and lost $302 million in the Middle East and Africa.
Ford's guidance for 2017 remained unchanged. It expects profits to slip compared with 2016 as it invests in new mobility services.
Analysts are encouraged by the automaker's performance.
"There is substantially encouraging news out of Ford in the revenue and profit front, but a few red flags, such as incentive spend and heavy reliance on pickups and SUVs in the U.S," said Rebecca Lindland, senior analyst for Kelley Blue Book.
Barclays analyst Brian Johnson praised Ford's decision to trim production in the latter part of 2016 "as it realized it overproduced earlier in the year."
"Looking into 2017 ... today's result is maybe a sign that if Ford remains committed to production discipline, and if [the] pricing environment is not as negative as we initially feared, there could be upside to Ford estimates," Johnson wrote.
For the full year, Ford Credit posted a $1.9 billion pretax profit, down $207 million from 2015. The company projects a $1.5 billion pretax profit in 2017 because of lower U.S. auction values.