By Mike Ramsey
Ford Motor Co. is removing its Venezuelan operation from its
consolidated financial reports, taking an $800 million pretax
charge in the fourth quarter amid unstable economic conditions and
additional currency devaluation.
The charge is the second related to Venezuela for last year,
bringing the total impact above $1 billion in 2014. The
fourth-quarter hit is so large that it could lead Ford to post its
first net loss since 2009.
The move comes during a tough period for Venezuela's auto
industry. Several top auto makers, including General Motors Co. and
Toyota Motor Corp., have cut output in the South American country
significantly because of a lack of dollars to pay parts suppliers.
Other industries, including newspapers, bottlers and food
processors, have been hit hard by currency controls preventing
companies from taking dollars out of Venezuela.
The collapse in the price of oil, the country's main export, has
worsened an already-tough economic situation in Venezuela. Weakness
in Venezuela is another blow to Ford following a year of setbacks.
Earlier this year, the auto maker was forced to lower earnings
guidance because of recall costs, softness in South America and
weaker-than-expected performance in Europe.
Venezuelan auto sales are modest, but the U.S. auto maker
operates a large factory in Valencia producing Fiesta small cars
and Explorer SUVs. Ford's charge will lower its 2014 fourth-quarter
net income results by $700 million, the company said, and it
follows a $350 million charge Ford took in April due to the
devaluation of the currency.
On Thursday, Venezuela President Nicolás Maduro opened the
possibility of cutting a gasoline subsidy in the country and
devaluing the currency once again, likely prompting Ford's
disclosure that it is removing Venezuela from its consolidated
financial reporting.
Citi analyst Itay Michaeli said "our initial take on this news
is that it's a modest positive. The switch to the cost method of
accounting is essentially an accounting 'divorce' that
deconsolidates Venezuela results and therefore eliminates the
(foreign-exchange) volatility that plagued Ford's 2014
results."
Mr. Michaeli said GM could consider the move as well. A GM
spokesman said the company has no comment on the specific issue of
pulling Venezuelan results from consolidated earnings.
Ford is scheduled to report its quarterly earnings Thursday.
Before Friday's disclosure, analysts polled by Thomas Reuters had
forecast adjusted earnings of 23 cents a share, compared with 31
cents a share profit a year earlier.
In addition to regional economic weakness, lower production of
its F-150 pickup because of a production changeover to an
aluminum-body construction will likely weigh on earnings. Ford said
it continues to expect its full-year 2014 pretax profit, excluding
special items, to be $6 billion, lower than 2013's results.
Write to Mike Ramsey at michael.ramsey@wsj.com
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