NEW YORK (Reuters) - Ford Motor Co (F.N) warned Wednesday that the cost of launching new vehicles and a deteriorating Venezuelan economy would dent its profit next year, news that sent the No. 2 U.S. automaker’s shares to their biggest one-day percentage drop in more than two years.
The Detroit-area company said its mid-decade target for a global automotive profit margin of 8 percent to 9 percent was also at risk. Analysts worried about the company’s pricing next year in its core U.S. market, which Ford said would be “slightly unfavorable.”
Ford expects a global pretax profit next year of between $7 billion and $8 billion. That is lower than the projected $8.5 billion expected in 2013, which is set to be one of the most profitable in the company’s 110-year history, Ford said. Much of that amount - about $8.34 billion - is estimated to come from North America. It was the first time Ford has provided its forecast for 2014 results.
Ford investors, already coping with the speculation about when CEO Alan Mulally will move on, were caught off-guard by the profit outlook. Inside Ford, top executives are confident the team Mulally has groomed is ready for whenever he exits.
“I had thought that Ford was humming along just fine,” said Gary Bradshaw, portfolio manager with Dallas-based Hodges Capital Management, which owns Ford shares. “Autos have been a bright spot in the economy. I‘m a little bit surprised.”
Buckingham Research analyst Joseph Amaturo said he expected investors to “aggressively rotate out of Ford and into General Motors Co (GM.N)” due to the latter’s advantage with the rollout of its high-profit, redesigned full-size pickup trucks and related SUVs. He maintained an “underperform” rating on Ford shares.
A major expense next year for Ford will be a record 23 global product launches, which, Shanks said, showed a commitment to future expansion and preparation for “profitable growth.” That compares with 11 launches this year.
Product launches will have more of a financial impact in the second half of 2014 than in the first half, Shanks said. The company did not say how much the launches will cost.
Sixteen of the launches next year will be in North America and as a result Ford said its pretax profit in the region would be lower than in 2013 and the profit margin would be 8 percent to 9 percent.
Ford’s 2014 profit was set to drop “due to deterioration in North America pricing and lower F-Series production,” Amaturo said.
“Today’s announcement is Ford’s attempt to keep expectations in check considering expected deceleration of 2014 (North American) sales growth,” Stifel Nicolaus analyst James Albertine said in a research note, calling 2014 a “transition year.”
Barclays analyst Brian Johnson said in a research note that the disappointing outlook could mean a hit of about 30 cents a share on his 2014, full-year, profit estimate of $1.83.
The Ford F-Series pickup truck - the most profitable vehicle in the automaker’s lineup - is sold in North America, where it has been the industry’s top-seller for more than three decades.
A new version of the F-Series is to debut next fall, and there is concern among some analysts that inventory will be constrained during its launch.
Shanks said that in South America, Ford is expected to show breakeven results in 2014 as in 2013. Improvements in Brazil and other areas will be outweighed by difficulties in Venezuela. For 2013, Ford had previously said it would post breakeven to profitable results.
He said Ford expects the U.S. dollar to drop to 12 bolivars from the current 6.3 bolivars, “with an unfavorable profit effect of about $350 million.”
The ruling Socialist Party in Venezuela controls the currency exchange rate. Shanks said Ford expects a devaluation of the Venezuelan bolivar - as occurred in early 2013 - to take place again in early 2014.
There is also concern that Venezuela may expand its price-setting policies to include new vehicles, as it has done for auto parts sold to dealers. The prices the government set for auto parts were below normal profit margins, Shanks said.
The Venezuelan government earlier this month issued a decree regulating the prices of used and new cars in a move to control the high inflation.
In the first nine months of the year, GM recorded $162 million in charges for Venezuela’s currency devaluation. Other companies, including Colgate-Palmolive (CL.N), Procter & Gamble (PG.N), Avon Products (AVP.N) and DirecTV DTV.O, have also been hit by the currency turmoil in Venezuela.
In Europe, Ford expects the overall market to improve. Once it gets beyond its restructuring expenses of $400 million in 2013 and 2014, the company expects to be profitable on the continent, which has been a damper on its earnings over the past several years.
“We fully expect to be profitable in Europe in 2015,” said Ford Chief Financial Officer Bob Shanks, who gave the end-of-year presentation in New York.
Shanks said he would be working for Mulally next year in response to a question about the Mulally’s employment status. Ford’s CEO has been mentioned by sources as a candidate for the top job at software giant Microsoft Corp. (MSFT.O)
For 2013, Ford expects one of its best years ever, with full-year, auto revenue projected to grow about 10 percent.
It sees its North American pretax profit at the highest level in more than a decade, and an operating margin of 9.5 percent to 10 percent. The company had forecast about 10 percent.
Ford said the difference was due mostly to higher warranty expenses of $250 million to $300 million, mostly due to last month’s recall of the Escape SUV.
Ford also estimated that the underfunded status of its global pension plans was about halved in 2013 compared to the previous year to $10 billion.
The company said it will recognize special-item charges of about $850 million related to the completion of its U.S. salaried retiree voluntary lump sum program, of which $600 million will be in 2013 and $150 million in the fourth quarter.
Ford also said it now expects average annual contributions for its global funded pension plans required over the next three years to be about $1 billion to $2 billion per year, down from its previous forecast of $2 billion to $3 billion.
Ford shares closed down $1.05, or 6.3 percent, at $15.65 in trading on the New York Stock Exchange. The stock earlier in the day fell as much as 9.2 percent to $15.17, the biggest one day drop since August 2011.
Additional reporting by Bernie Woodall and Ben Klayman in Detroit; Editing by Bernadette Baum and Leslie Gevirtz