Ford Drops on Lower Guidance

Ugly day for Ford Motor ($F). The stock dropped sharply late in the day after the automaker cut its earnings guidance for this year. By the closing bell, Ford lost 7.5% to close at $15.11.

Before, Ford had said that its operating profit for this year would range between $7 billion and $8 billion. Now they’re saying it will be $6 billion.

There are a few culprits for the bad news. One is Europe and Russia in particular. The sanctions there are starting to weigh in and the European economy as a whole is still in rough shape. Ford said they expect to lose $1.2 billion in Europe this year. But that will improve to a loss of “only” $250 million next year.

On top of that, last week Ford said it had to recall 850,000 vehicles to fix an airbag problem. The total cost will be $500 million. Ford also said it projects to lose $1 billion in South America this year. One bright spot is Asia where Ford projects a profit of $700 million.

In the U.S., Ford sees margins between 8% and 9% which is at the low end. The recalls are taking a toll. To their credit, Ford is optimistic for next year. They see 2015 profits ranging between $8.5 billion to $9.5 billion. That’s about $2.20 to $2.45 per share in pre-tax earnings.

I’m disappointed by this lower guidance. Ford has been recovering well, but there are clearly more hurdles to overcome. I’m not so concerned about the geopolitical issues; Ford can’t control those. I am, however, concerned by the recalls. They’re not a good sign.

In the longer run, Ford’s core business is still truck sales in North America. The big issue for the next 12 months is how well the new aluminum-bodied car will be received. The company has a lot at stake on this.


Posted by on September 29th, 2014 at 5:47 pm

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.