Ford (NYSE:F) blew away Wall Street estimates with a surprisingly strong second-quarter profit. Analysts had expected a year-over-year drop in pre-tax profit, but the Blue Oval surprised with a 10.4% increase, to $2.87 billion.
Ford's profit jumped despite the fact that sales of Ford's all-important F-Series pickup had fallen 6% during the quarter, due to tight supplies of the new F-150.
The F-Series is Ford's biggest selling product line in North America, and it's immensely profitable. In the past, Ford's profits have tended to rise and fall with its pickups.
Ford has been getting very strong prices for its new trucks, but Ford's profit was still a big surprise. An even bigger surprise: For once, the F-150 wasn't a factor.
A record profit in North America, with no help from Ford's pickups
Ford's pre-tax profit of $2.6 billion in its North America unit was an all-time record. But CFO Bob Shanks made no bones about it during the company's second-quarter earnings call: For once, the F-Series didn't make a contribution to Ford's jump in profits.
"We clearly expect [profits in] North America to be stronger in the second half than in the first [half of 2015]," Shanks told analysts and reporters during the call. "F-Series actually did not contribute to the bottom line in the [second] quarter because of the fact that it was in a launch phase." (Emphasis added.)
That was a surprising statement, and Shanks was asked about it later on. Average transaction prices on the F-Series were up over $3,000 in the quarter versus the year before, which suggests fat profits on the new trucks that Ford did sell. Did he mean that the drop in sales volume was roughly equal to the gain in pricing?
"On a year-over-year basis, [the F-Series] did not generate incremental profits. That's because the volume was lower," he said. "We also were in launch mode [for the new F-150], so we had all the structural costs associated with the launch but didn't have the plants producing at capacity." (Again, emphasis added.)
In other words, Ford was probably making more money on every truck it sold. But because total sales were down, and its costs were up because of the launch, that pricing advantage didn't translate into an increase in profit. Compared to the amount of profit generated by the F-150 in the second quarter of last year, it was a wash.
Will a jump in pickup sales yield an even bigger boost in profit?
It turned out that Ford's fat second-quarter profit increase in North America was driven largely by big sales of two SUVs, the new-for-2015 Edge and the refreshed-for-2016 Explorer. Both are solidly profitable products, and both saw sales jump during the quarter.
The sales momentum for the two new Ford SUVs continued into July. Meanwhile, supplies of the new F-150 have been growing, and sales of the F-Series also turned up in July. ("F-Series" includes the F-150 as well as its Super Duty siblings. The F-150 accounts for roughly 70% of F-Series sales, on average.)
The increase in pickup sales (together with the sustained success of the SUVs) should give Ford's profits another boost in the second half. That's expected: Ford's guidance for 2015 said that we should expect the majority of its profits to come in the third and fourth quarters -- because of the costs of launching the new F-150.
But Ford managed a second-quarter jump anyway, thanks to big SUV sales. Will the new F-150 help it manage an even bigger leap in the third? Stay tuned.