Ford Motor Company (NYSE:F) will report its third-quarter earnings results before the bell on Oct. 27 -- Thursday of next week. Here's a look at what to expect.
What Wall Street expects
Analysts polled by Thomson Reuters expect Ford to report earnings of $0.22 per share, on average. That's down significantly from the $0.45 per share that Ford earned in the third quarter of 2015.
What happened at Ford during the quarter?
Ford's U.S. sales fell 6.3% from the third quarter of last year. That was due in part to the timing of deliveries to rental fleets. But Ford also lost ground to some competitors at retail, a worrying sign.
U.S. sales of Ford-brand cars dropped 20%, not a big surprise given the broad global trend away from sedans and toward SUVs. But U.S. sales of Ford-brand SUVs were down 3.4% in the third quarter. That's something of a surprise, and I'm hoping that Ford explains what happened during the call. Sales of the F-Series pickup line, a major driver of Ford's global profits, fell 3.3% -- in part on short supplies of Super Duty models. Ford transitioned to the all-new 2017 Super Duty during the quarter.
In Europe, the profitable trends we saw in the second quarter appeared to continue throughout the third. Ford posted a big $467 million profit in Europe in the second quarter, powered by strong sales of high-profit SUVs and commercial vehicles. Ford's sales in the "Euro 20," its 20 core western and central European markets, rose another 5.1% in the third quarter; they were paced by an impressive 21.8% year-over-year gain in commercial vehicles and a big jump in sales for Ford's mainstay Kuga SUV (twin to the U.S.-market Escape).
In China, a sluggish second-quarter result led CEO Mark Fields to order substantial changes. Those changes appear to have paid off, as Ford's sales in China were up strongly in July, August, and September. Again, SUVs were a big part of the story: Ford's midsize Edge is a bona fide hit in China, and the small Fiesta-based EcoSport SUV has also generated strong sales. But it's unclear whether price cuts were a driver of Ford's third-quarter sales growth. If they were, profit gains may be somewhat disappointing.
What Ford's guidance tells us about what to expect
This slide summarizes the guidance that CFO Bob Shanks gave during Ford's second-quarter earnings call:
Ford has said that it expects its adjusted pretax income for the full year to be equal to or greater than the $10.8 billion it earned in 2015. It earned $6.8 billion in the first half, leaving $4 billion (or more) in the second half.
However, during the earnings call, Shanks warned that there are "net risks" to Ford's guidance. The Blue Oval's second-quarter result fell short of Wall Street estimates, something that Ford blamed on rising costs (including incentives), the challenges in China, and a plateauing U.S. market. The company stuck with its full-year guidance, but warned that it would have to deliver some substantial cost cuts in order to meet its numbers.
The good news is that Ford was able to cut about $1.6 billion in costs in the first half of 2016, and Shanks said that Ford was "committed" to finding further cost reductions that would allow it to meet its guidance.
All that said, there's reason to think that the third quarter will be the thinnest of the year for Ford in terms of profits. While good results in China and Europe should help, the launch of the all-new 2017 Super Duty pickups is an expensive undertaking, and much of the expense will be booked in the third quarter.
The upshot: Profits won't be huge this time around
Based on hints from the company, I expect this quarter's bottom-line result to be pretty thin -- likely around a billion dollars, possibly a bit less. (I expect that the fourth quarter will look a lot better.) Wall Street's $0.22 per-share estimate is probably in the right neighborhood. We'll find out next Thursday.