* Incentives in North America up on aging vehicle lineup
* Affirms 2014 outlook of $7 bln to $8 bln pretax profit
* CEO Mulally says he will remain with company through year
* Shares down 3.4 percent
(Adds CFO and analyst comments, industry background, updates
By Ben Klayman and Bernie Woodall
DETROIT, April 25 Ford Motor Co posted a
lower-than-expected first-quarter profit on Friday as the No. 2
U.S. automaker reported $400 million in higher warranty costs in
North America, sending shares down more than 3 percent.
Across the auto industry, safety recalls and warranty costs
have received increasing attention as cars have become more
complex and loaded with technology, Ford Chief Financial Officer
Bob Shanks said.
"Everybody is generally reacting, and certainly we do, as
soon as we find a problem," he told reporters at the company's
suburban Detroit headquarters. "And you're seeing that across
the business. It's not any particular company."
While Ford adjusts its warranty reserves every quarter, the
total was larger in the first quarter because the company has
dealt with more field service actions such as recalls and
addressing customer complaints over the last two years, Shanks
Conspicuous safety defects also demand that automakers
respond or risk large federal fines and hefty legal payouts,
which General Motors Co now faces because of its recall
of faulty ignition switches linked to at least 13 deaths.
The GM recall serves as reminder to rivals,
Stifel analyst James Albertine said.
"Any (automaker) that is not taking advantage of the
opportunity GM has given them to clean the proverbial recall
house is missing the boat," he said.
In addition to the higher warranty costs, Ford's incentives
in North America also rose in the first quarter due to an aging
lineup of vehicles, something Ford is addressing with the launch
of 16 new models in the region this year. Newer vehicles
typically sell with no incentives or reduced ones.
"The company has a lot of new products coming online this
year," said Fitch Ratings analyst Stephen Brown, who expects
earnings to improve in the second half because of the new model
rollouts. "They haven't seen the benefits (of the new vehicles)
on dealer lots yet."
Analysts have worried that U.S. industry incentives may rise
as sales growth slows. Research firm TrueCar.com said industry
average incentive spending per vehicle in April jumped almost 9
percent to about $2,750.
Despite the rising incentives, Ford affirmed its forecast
for pretax profit for 2014, a year in which it is launching a
record 23 new vehicles globally. It also said it is amending and
extending its revolving credit facility.
Shanks said the underlying business remains strong.
"The run rate is very healthy and we feel that we're moving
forward very nicely in terms of what we expect for the year and
setting us up for stronger growth and stronger profitability in
2015 and beyond," he said.
Also on Friday, Ford Chief Executive Alan Mulally, 68, said
on a conference call that there was no change in his plans to
remain at the company through the end of the year. Earlier this
week, a source said that Ford will soon name Chief Operating
Officer Mark Fields as Mulally's successor.
Net income fell 39 percent to $989 million, or 24 cents a
share, from $1.61 billion, or 40 cents a share, in the
The quarter included the $400 million in additional costs
for warranty reserves in North America for vehicles from as
early as the 2001 model year, and $100 million in costs related
to higher freight and other items due to the harsh winter in
North America. It also included previously disclosed costs of
$400 million, mostly due to the currency devaluation in
Venezuela. All three items totaled 17 cents a share.
Excluding one-time items for European restructuring, Ford
earned 25 cents a share, 6 cents below analysts' estimates in a
poll by Thomson Reuters I/B/E/S. The warranty reserves totaled 6
cents a share while weather costs accounted for another 2 cents.
Revenue was up slightly at $35.9 billion, above the $34.06
billion analysts had expected.
EUROPEAN LOSS NARROWS
Ford, which still expects a pretax profit this year in the
range of $7 billion to $8 billion, said its credit facility is
expected to grow to about $12 billion, from $10.7 billion after
its completion at the end of the month. It forecast operations
in South America will be weaker than previously forecast for the
year, while Asia Pacific's profit will be higher than last year.
Shanks said various global launches, including its redesign
for the highly profitable F-150 full-size pickup truck, remain
Net pricing in the quarter was up only $175 million as
incentives increased $471 million over last year. Most of those
higher incentives were offered in North America, where net
overall pricing actually fell.
The North American operating profit fell by more than a
third to $1.5 billion. RBC Capital markets analyst Joseph Spak
said that was below Wall Street's expected consensus of $2.2
billion and the company's profit margin in the region was weaker
The North American operating margin fell to 7.3 percent from
11.1 percent last year as Shanks said the warranty and
weather-related costs took a bite of 2.5 percentage points.
However, Ford affirmed its outlook for a full-year margin in the
region of 8 to 9 percent.
Overseas, business was more positive as demand continued to
increase in China, the world's largest auto market, and the
company's losses in Europe narrowed and were lower than expected
according to analysts.
In China, Ford said its market share hit a record 4.5
percent, up from 4.4 percent in the fourth quarter. The profit
in Asia Pacific rose to $291 million from a year-ago loss of $28
The company's loss in Europe, which has been a drag on Ford
profit for several years, was $194 million, down from $425
million a year ago.
The loss in South America, however, deteriorated to $510
million from a loss of $218 million last year due to the
currency devaluation in Venezuela and Argentina.
Ford shares were down 3.4 percent at $15.77 on the New York
Stock Exchange on Friday afternoon.
(Editing by Jeffrey Benkoe, Sofina Mirza-Reid; and Matthew