Ford Motor Company (F +0.39%) reported its fourth-quarter and full-year 2016 earnings on Jan. 26. Here's what shareholders need to know.
The raw numbers
Below are key numbers from Ford's fourth-quarter 2016 result.
| Metric | Q4 16 Result | Change From Q4 15 |
|---|---|---|
| Net income (loss) | ($783 million) | $2.7 billion decline |
| Adjusted pre-tax income | $2.1 billion | $0.5 billion decline |
| Adjusted earnings per share (EPS) | $0.30 | $0.28 decline |
| Revenue | $38.7 billion | $1.6 billion decline |
| Global market share | 7.1% | 0.1 ppts decline |
| Automotive operating margin | 5.7% | 0.4 ppts decline |
| Automotive operating cash flow | $1.5 billion | $0.6 billion decline |
This chart shows the key numbers from Ford's full-year 2016 result.
| Metric | 2016 Result | Change From 2015 |
|---|---|---|
| Net income | $4.6 billion | $2.8 billion decline |
| Adjusted pre-tax income | $10.4 billion | $0.4 billion decline |
| Adjusted earnings per share (EPS) | $1.76 | $0.17 decline |
| Revenue | $151.8 billion | $2.2 billion increase |
| Global market share | 7.3% | 0.1 ppts decline |
| Automotive operating margin | 6.7% | 0.1 ppts decline |
| Automotive operating cash flow | $6.4 billion | $0.9 billion decline |
Source for data in both charts: Ford Motor Company. "Automotive" figures exclude results related to Ford Credit, the company's in-house bank.
The nutshell summary: Ford's underlying business remains strong
Ford posted a net loss of $783 million in the fourth quarter of 2016, as one-time charges related to the cancellation of a Mexican factory and its pension plans offset strong underlying results, particularly in the U.S. and Europe.
On an adjusted pre-tax basis, excluding those special items, Ford earned $2.1 billion in the fourth quarter, or $0.30 per share, down from a strong year-ago result. Revenue of $38.7 billion was down $1.6 billion from a year ago.
A big increase in transaction prices for the all-new 2017 Super Duty pickups helped bolster Ford's margins in the quarter. Image source: Ford Motor Company.
For the full year, Ford earned net income of $4.6 billion, down $2.8 billion from a year ago. Its adjusted pre-tax income of $10.4 billion was the company's second-best result ever. The decline of $425 million from 2015's record result was more than explained by a costly ($591 million) recall in the third quarter.
How Ford's business units fared during the fourth quarter
In North America, Ford earned $1.96 billion on an adjusted pre-tax basis, down $73 million from a year ago. Improvements in pricing were offset by higher costs and lower overall wholesale volumes. Market share was down slightly, a drop CFO Bob Shanks said was more than explained by a year-over-year drop in sales to rental-car fleets. Operating margin of 8.5% is a fourth-quarter record for the region.
For the full year, Ford earned $9 billion in North America, down 4% from a year ago.
In South America, Ford lost $293 million, a $2 million improvement from a year ago. Economic conditions in the region remain extremely tough, but Shanks noted that this is the first time since the third quarter of 2013 in which all of Ford's "key metrics" improved. Ford gained market share on strong sales of the tiny Ka and revamped Ranger pickup. However, Shanks noted that while Ford has been aggressive with pricing increases, it hasn't been possible to fully offset high inflation and unfavorable exchange-rate moves.
For the full year, Ford lost $1.1 billion in South America, 33% worse than a year ago.
After several years of losses, Europe has been a good story for Ford in recent quarters. That story continued in the fourth quarter, as Ford earned $166 million in the Old World, up 27% from a year ago. Revenue was roughly flat, at $7.2 billion, but Ford was able to eke out an 0.5% improvement in operating margin to 2.3% as buyers continue to favor highly profitable well-optioned versions of Ford's mainstream models.
For the full year, Ford earned $1.2 billion in Europe, a huge jump from its $259 million profit a year ago.
Ford's Middle East and Africa unit lost $71 million in the fourth quarter, down from a $13 million profit a year ago. The unit has struggled as low oil prices have depressed sales in the region. Unfavorable exchange-rate moves, particularly related to South Africa's currency, have also hurt: Ford builds vehicles in South Africa and exports them to other countries in the region.
For the full year, Ford lost $302 million in the Middle East and Africa, down from a $31 million profit a year ago.
Ford's Asia Pacific region includes its big operation in China. It earned $284 million in the fourth quarter, down from $444 million a year ago. Ford has had to trim prices in response to more aggressive competition from domestic Chinese automakers. That hurt margins, which were down 4.7 points to a (still strong) 8.4%. Ford's joint ventures with Chinese automakers generated $380 million in equity income during the quarter, with a 12.8% margin.
For the full year, Ford earned $627 million in Asia Pacific, down 18% from a year ago.
Ford Credit, the company's in-house financing unit, earned $398 million during the fourth quarter, down 28% from a year ago. Falling used-car prices have dented Ford Credit's income from the sale of vehicles returned at the end of their leases. Delinquencies rose 3 basis points to 0.16% from a year ago -- not worrisome, but something to watch.
For the full year, Ford Credit earned $1.9 billion, down 10% from a year ago.
Special items: Pensions and that Mexican factory
Ford took a one-time accounting charge of $3 billion related to an annual remeasurement of the value of its pension obligations. The discount rate declined in 2016, raising Ford's pension liabilities. Ford had warned investors of this charge in November.
Ford also took a charge of $200 million related to its decision to cancel the construction of a new factory in San Luis Potosi, Mexico. Shanks explained that the charge is related to the costs of returning the land parcel to its original state -- or put another way, to reversing the early construction steps that had been taken at the time of Ford's decision to cancel.
Cash flow, debt, and available liquidity
Ford had $1.5 billion in positive cash flow related to its automotive business in the fourth quarter, driven by strong auto-related profits. It also issued $2.8 billion in long-term bonds during the quarter, taking advantage of low interest rates. Against that, it contributed about $400 million to its pension plans and paid out about $600 million in dividends to shareholders. The upshot: Ford's cash on hand rose $3.2 billion to $27.5 billion as of December 31, 2016.
Against that, Ford had $15.9 billion in debt as of the end of the fourth quarter.
Looking ahead: Ford's full-year 2017 guidance
Ford reiterated the 2017 guidance first given by CEO Mark Fields earlier this month.
Image source: Ford Motor Company.
Briefly, Ford expects its 2017 adjusted pre-tax profit to be down a bit from its 2016 result on increased spending related to investments in advanced technologies and new "mobility"-related business opportunities.
Within the regions, it expects rising commodity costs to weigh on North America and Europe, and lower results from Ford Credit related to falling used-car prices. It expects pre-tax profit in South America, Middle East and Africa, and Asia Pacific to be higher in 2017 versus 2016.
