Ford Motor Company (F 4.16%) reported net income of $1.7 billion for the first quarter of 2018, up 9% from a year ago, an increase more than explained by a lower effective tax rate, the company said. Ford's pre-tax result was down modestly on higher costs for key commodities and unfavorable exchange-rate movements.

Ford's revenue increased 7.4% from a year ago, to $42 billion.

During Ford's earnings presentation, CEO Jim Hackett announced that Ford has found $11.5 billion worth of "cost and efficiency opportunities" that should allow it to reach an 8% overall EBIT margin by 2020, two years earlier than it had previously expected. The company will also revamp its product line in North America, dropping all car models aside from the Mustang and a version of the Focus, to boost investments in more profitable truck and SUV models. 

A dark blue 2018 Ford Mustang fastback on a mountain road.

Ford said that the Mustang was the world's top-selling sports coupe in 2017. The next-generation Mustang will be one of just two Ford-brand car models offered in North America. Image source: Ford Motor Company. 

The raw numbers

Here are the key numbers from Ford's first-quarter 2018 results.

Metric Q1 2018 Change vs. Q1 2017
Revenue $42.0 billion 7%
Vehicles sold 1,662,000 (2.4)%
Adjusted EBIT $2.2 billion  (12)%
Automotive EBIT margin 4.4% 1.6 ppts lower
Net income $1.7 billion 0.1%
Adjusted earnings per share $0.43 $0.03 improved

Data source: Ford Motor Company. "EBIT" is earnings before interest and tax. "Adjusted" figures exclude the effects of one-time items. Ford took $23 million in one-time charges in the first quarter. "Vehicles sold" are wholesales and are rounded to the nearest thousand. "Ppts" = percentage points.

How Ford's business units performed in the first quarter

Here's a look at how each of Ford's business segments performed. Note that this is the first quarter in which Ford reported separate results for its mobility segment, a change it announced earlier this year. All financial results in this section are reported on an EBIT basis, except as noted.

North America: Ford earned $1.9 billion in its home region in the first quarter, down from $2.1 billion a year ago. Its EBIT margin of 7.8% was down from 8.9% a year ago. Sales volumes, the "mix" of products sold, and net pricing were all positive year over year; the declines in EBIT and margin were more than explained by higher prices for commodities, particularly aluminum and steel.

South America: Ford lost $149 million in South America in the first quarter, an improvement of $88 million from the year-ago period. CFO Bob Shanks said that Ford's sales volume, product mix, and pricing net of incentives were all strongly improved from a year ago, but higher commodity costs and high local inflation in key markets (particularly Argentina) offset more than half of those gains. 

Europe: Ford earned $119 million in Europe in the first quarter, down from $209 million a year ago. Ford saw dramatic improvements in net pricing from a year ago, driven by strong demand for the all-new Fiesta (a best-seller in Europe). But those gains were more than offset by lower sales volumes and unfavorable mix, as European buyers turned away from higher-profit diesel models, as well as unfavorable exchange-rate movements.

Middle East and Africa: Ford lost $54 million in this region, an improvement of $21 million from a year ago. Net pricing and costs both improved, but sales were down (marketwide) in Saudi Arabia, a key market.

Asia Pacific: Ford lost $119 million in Asia in the first quarter, versus a $148 million profit, a decline more than explained by lower sales volumes and higher spending in China. As part of a previously announced China restructuring effort, Ford is investing in expanded local production of several upcoming all-new vehicles, including the next-generation Explorer SUV and several Lincoln models.

Ford earned $138 million in equity income from its China joint ventures, down from $274 million a year ago, on weaker sales and investments in future product.

Mobility: Ford's mobility segment, which includes its autonomous-vehicle effort and its Smart Mobility initiatives, lost $102 million in the first quarter, versus a $64 million loss a year ago. That loss includes a one-time investment gain of $58 million for the Smart Mobility unit and a $53 million year-over-year increase in spending on autonomous vehicles.

Ford Credit: The Blue Oval's captive-financing arm earned $641 million before taxes, up from $481 million a year ago. Nearly all metrics were positive: Credit quality remains good, losses remain modest, and auction prices for Ford's off-lease vehicles remain strong.

Special items, debt, and liquidity

Ford took one-time charges of $23 million in the first quarter, most related to its annual pension remeasurement, offset somewhat by $9 million in savings related to production of the next-generation Focus compact.

As of March 31, Ford had $27.6 billion in cash available to its automotive business, and another $11 billion in available credit, for total liquidity of $38.6 billion. Against that, Ford had $16.4 billion of well-structured long-term automotive debt.

Ford's unfunded pension liability totaled $6.1 billion as of March 31, down slightly from the end of 2017. Of that, $1.9 billion was related to its U.S. pension plans.

Looking ahead: Ford's full-year guidance

Ford's company-level guidance for 2018 hasn't changed since its presentation to investors in January. But Shanks did give additional guidance for full-year EBIT for each of Ford's individual business units and segments, as follows:

  • Overall automotive will be flat to slightly lower from 2017 ($8.1 billion). Within that:
    • North America will be lower on higher commodities prices and increased spending on future products.
    • South America will improve from 2017 on improving regional market factors.
    • Europe will improve from 2017 on Brexit-related improvements and higher pricing driven by new products (Fiesta, Focus, and EcoSport).
    • Middle East and Africa will be higher on improving market factors.
    • Asia Pacific will be lower on China-related market factors, restructuring costs, and adverse exchange-rate movements.
  • Mobility's losses will rise from the roughly $300 million it lost in 2017, on increased investments in autonomous-vehicle development and Smart Mobility projects.
  • Ford Credit's earnings before tax will be flat to slightly lower from 2017 ($2.3 billion) on an expected decline in auction values and thinner financing margins due to rising interest rates.

The upshot, as Ford said in January: Modestly higher revenue in 2018 versus 2017, but lower adjusted earnings per share.