Ford Motor Company (F +0.09%) said that it expects to earn adjusted pre-tax income of about $9 billion in 2017, down from $10.4 billion in 2016 -- with most of the year-over-year drop coming in the first quarter.
Ford CFO Bob Shanks delivered the news in a briefing for investment analysts on Thursday, March 23. Here's what he told Wall Street to expect from the Blue Oval in 2017.
Ford's chief financial officer, Bob Shanks. Image source: Ford Motor Company.
A big first-quarter profit drop will hit Ford's full-year result
We should note one thing right up front: This news wasn't a surprise. CEO Mark Fields told investors back in January that Ford's profit would be down in 2017 versus 2016 (and up again in 2018). But Thursday's briefing was the first time that Ford officials had put a specific number on the decline -- and the first time it had offered specific guidance around its expected first-quarter result.
Here's the key point: Shanks said that as of right now, Ford expects its first-quarter income to come in between $0.30 and $0.35 a share. Shanks said that range could change a bit as further results come in over the next week or so, but that's down sharply from the $0.68 per share (excluding one-time items) that Ford earned in the first quarter of 2016.
Ford's adjusted pre-tax income in the remaining three quarters of 2017 will roughly track what it made in the corresponding three quarters of 2016, Shanks said.
So what's driving the first-quarter decline? There are a few factors. First and foremost, it's a tough comp: The first quarter of 2016 was Ford's best-ever quarterly result, fueled by big truck sales, low incentives, and a great result in pre-Brexit Europe.
Things will be different this time around. Costs are up, partly because of swings in certain commodity prices and partly because of the way Ford accounts for the costs of its big Super Duty pickups, which are all new for 2017. Ford has also ramped up its spending on advanced technologies from a year ago, and it expects some negative year-over-year impact from exchange-rate moves.
Image source: Ford Motor Company.
The good news is that Ford expects things to recover -- and then some -- in 2018, as more of the changes it's making to its products and businesses take hold.
Image source: Ford Motor Company.
So what does all of that mean in terms of Ford's total profit for the quarter? Last year, Ford made $3.8 billion in adjusted pre-tax income in the first quarter, on its way to $10.4 billion for the full year. ("Adjusted pre-tax income" is essentially Ford's non-GAAP way of saying "earnings before tax, minus any special items.") Assuming the rest of the year stays consistent, that suggests adjusted pre-tax income of around $2.4 billion for the first quarter of 2017 -- down, but still decent. The sky isn't falling.
The takeaway: No need for long-term investors to panic
It is true that Ford is likely to face some headwinds in the coming quarters. The U.S. new-car market is probably at or past its peak, meaning that at some point, sales will start to slip and industrywide spending on incentives will rise. (Incentives are already rising, but for the most part not dramatically -- yet.) And China's huge new-car market is likely also at a plateau, though Ford might be able to squeeze out some incremental growth in high-profit segments like SUVs and luxury vehicles.
But Shanks emphasized that Ford doesn't yet see signs of a recession on the horizon for the U.S. The company expects the remainder of 2017 to be strong, and is optimistic about 2018 as well.
Long story short: There's no need for Ford investors to panic. It's just a single down quarter. But we'll be watching carefully for more signs of those headwinds as the year unfolds.
