F Ford Motor Company

By Christina Rogers 

Ford Motor Co.'s third-quarter net income fell 56% compared with the same period in 2015, with hefty recall expenses, softening U.S. volumes and product-launch costs denting margins in the core North American market.

The No. 2 U.S. auto maker on Thursday reported nearly $1 billion in net income for the period ended Sept. 30, down from $2.2 billion recorded in 2015's third quarter. The prior-year's performance benefited from the high prices Ford was commanding for the redesigned F-150 pickup truck.

The Dearborn, Mich., auto maker said operating profit equaled 26 cents a share, solidly beating analysts' expectations of 20 cents a share as recall expenses and marketing costs were lower than anticipated. The results were hit by a $600 million expense booked during the quarter related to a safety recall.

Revenue declined 6% to $35.9 billion, with global deliveries down slightly, including lower sales in the U.S. The company said it had $2 billion in cash outflows in the third quarter, and plans to post positive cash flow in the fourth quarter.

While Ford remains profitable, third-quarter jitters underscore concerns about Detroit's ability to continue increasing margins or sales amid a U.S. market plateau. As smaller U.S. auto makers Fiat Chrysler Automobiles NV and Tesla Motors Inc. show potential for future earnings or revenue growth, General Motors Co. and Ford both reported deterioration in North American margins during the third quarter even as U.S. demand for profitable trucks and SUVs continues to surge.

Ford reaffirmed full-year 2016 guidance of $10.2 billion adjusted pretax profit, but also affirmed its North American margins will sag for the year compared with 2015. The auto maker plans to further trim production in the fourth quarter to deal with softer U.S. volumes.

"What's happening in the company is really what's happening in North America," said Ford Chief Financial Officer Bob Shanks. North American margins exceeded 12% in the third quarter of 2015, but fell to 5.8% in the most recent quarter, or 8.4% not including recall costs.

Coming off a record year in 2015, Chief Executive Officer Mark Fields is also combating weak conditions in South America and a dire outlook in the U.K. resulting from the country's vote in June to exit from the European Union.

Rising sales and profitability in China and an uptick in Europe profits helped counter a 57% drop in North American profits, which accounts for more than 80% of the company's profits. Ford's operating income in North America equaled $1.3 billion, compared with $2.9 billion in the same three-month period last year.

The auto maker issued a weaker U.S. outlook in the second half and industry sales to continue falling through 2017, putting pressure on senior leadership to lift earnings overseas.

In Europe, Ford posted an operating profit of $138 million compared with $9 million in the same year-ago period, sidestepping currency declines and softer sales in the U.K. tied to the Brexit impact.

Ford took steps to counter industry weakness in the U.K, including raising new-car prices 2.5% in September and reducing dealer stock. The company expects Brexit to lead to $140 million in negative earnings impact in the second half of 2016 and to shave another $600 million from earnings in 2017.

In Asia Pacific, Ford recorded a $131 million operating profit, up from $22 million a year ago, as its sales in China surged during the quarter. Margins rose in China in the third-quarter to 13.4% versus 12.7% a year ago, but Ford sells a fraction of the volume in China compared with what it sells in the U.S.

Ford's operating losses in South America deepened to $295 million, from $163 million in the third quarter a year ago, but Mr. Shanks says the market there is showing signs of bottoming out and the company expects a turnaround next year.

Write to Christina Rogers at christina.rogers@wsj.com

(END) Dow Jones Newswires

October 27, 2016 09:05 ET (13:05 GMT)

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