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Ford Projects Earnings Decline in 2014

Tough comparison after an extremely good 2013.

by on Dec.19, 2013

While the new Mustang could help Ford in the long-term, its launch next year will be costly.

Ford Motor Co. is warning its profits will likely fall next year even as it moves forward with ambitious plans to grow its business in the U.S., South America and Asia.

Ford’s shares fell 6.3% to $15.65 at the closing for the New York Stock Exchange on Wednesday after the company’s chief financial officer presented the new guidance for 2014 during a meeting in New York. It marked the steepest one-day decline of Ford shares in more than two years. The value of Ford common shares had increased by 21% this year – though that trailed the 27% gain for the Standard & Poor’s 500 Index.

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Ford estimated in the disclosure statement it will earn $7 billion to $8 billion in 2014 after an estimated $8.5 billion pretax profit for 2013. Ford executives said  last week the company will  introduce 23 new vehicles globally in 2014, more than double this year’s total, adding costs for equipment and marketing.

CFO Bob Shanks has been with Ford 34 years.

Analysts suspect Ford is setting itself up for reduced sales in the U.S. as it faces temporary closures or production cuts at key plants in order to launch the new models.

In addition, the maker also plans to open a new engine plant in Brazil and two more plants in China, where it is seeking to catch up to global rivals such as Volkswagen and General Motors, and hire 5,000 new employees in the U.S.

(For more on Ford’s plans for 2014, Click Here.)

Some of the launches planned for next year could be critical – notably the debut of the next-generation Mustang which Ford will now try to market abroad, and the all-new Lincoln MKC, a compact luxury crossover.

The core North American market will see a total of 16 launches in 2014. This is triple the number of vehicles introduced in Ford’s largest region in 2013, and will replace a significant percentage of the region’s volume.

(Click Here to check out the all-new 2015 Ford Mustang.)

As a result, Ford expects wholesale volume next year in North America to be lower than in 2013 and net pricing to be slightly unfavorable as it runs out prior models and assumes a continuation of a more competitive pricing environment for small and medium cars and utilities. There the maker blames the improved pricing power Japanese makers have gotten due to the weaker yen.

Ford expects North America’s 2014 pre-tax profit to be lower than in 2013, with an operating margin ranging from 8 to 9%, consistent with the company’s targeted ongoing range of 8 to 10 percent.

(Is he going or isn’t he. CEO Mulally sends mixed signals about whether he’ll go to Microsoft. Click Here for more.)

But there will be a longer-term upside, Shanks stressed, noting that, “The payoff for North America from the 2014 launches and investments we incur for future periods will be a stronger product lineup and volume and revenue opportunities into 2015 and beyond.”

While there may be some clouds on next year’s horizon, 2013 is turning out to be one of the best years in the company’s history, Shanks said. Full-year automotive revenue is expected to grow about 10%, with market share increases in all regions other than Europe, where Ford expects higher retail share of the passenger car industry, as well as improved share of the commercial vehicle market. In its Asia/Pacific Africa and China regions, the company expects record market shares.

Ford continued bolstering its balance sheet this year, trimming its underfunded global pension liabilities. It also doubled its stock dividend.

“We are celebrating what we expect to be an outstanding 2013, one that is likely to be among the best in our history,” Shanks said. “Once the year is finished, we expect it will show that we grew the business, delivered strong financial results, progressed the restructuring of our operations in Europe and Australia, strengthened our balance sheet and provided attractive returns to our investors.”

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One Response to “Ford Projects Earnings Decline in 2014”

  1. Jorge M. says:

    23 new models represents a massive capital investment and change over effort to produce the new models. Ford had better hope that U.S. auto sales don’t go soft with a saturated market or we could see them along with GM and Fiat looking for another bailout…