Ford Warns Profit Will Drop This Year

Ford Motor Co. warned profit will fall this year as Chief Executive Officer Jim Hackett spends heavily to catch up with rivals bringing electrified vehicles to market.

The U.S. automaker forecast adjusted earnings of $1.45 to $1.70 a share this year, down from about $1.78 last year. While Wall Street had been expecting a drop, the low end of the company’s guidance is worse than what analysts were anticipating.

Ford flagged its expectation for weaker earnings two days after Executive Chairman Bill Ford said the company founded by his grandfather is going “all in” on electric cars. The automaker kicked off the Detroit auto show by pledging to invest $11 billion to bring 40 electrified vehicles to market by 2022. Hackett, 62, last year took over an automaker that lacks a model to compete with cars like General Motors Co.’s Chevrolet Bolt or Tesla Inc.’s Model S.

“We know we must evolve to be even more competitive and narrow our full line of nameplates in all markets, to a more focused lineup that delivers stronger, more profitable growth, with better returns,” Jim Farley, Ford’s president of global markets, said in a statement.

Ford shares fell 2.1 percent to $12.82 as of 5:32 p.m., after the close of regular trading in New York. The stock rose just 3 percent in 2017, trailing Tesla’s 46 percent surge and GM’s 18 percent jump.

The biggest factors contributing to Ford’s expectation for lower profit this year are the rising price of commodities, including steel and aluminum, and adverse effects from currency exchange rates, in part due to Brexit. Those costs represent a $1.6 billion headwind to Ford’s earnings this year, according to Chief Financial Officer Bob Shanks.

Prolonged Payback

The forecast prolongs the payback from spending on autonomous vehicles and other technology that Hackett’s predecessor, Mark Fields, had been promising to investors before his ouster in May. Profit will rebound over time, Shanks said in a phone interview.

“We certainly see us on a path toward the margins that we have been targeting for a long time,” Shanks said referring to Ford’s goal for an 8 percent operating margin. “Not this year or next year, but within the next several years.”

In addition to electrifying its lineup, Ford is reallocating investment toward sport utility vehicles amid slumping demand for passenger cars in its home market. The company projects it will boost the share of its sales from SUVs by 10 percentage points — all at cars’ expense — over the next couple years to cash in on more lucrative models that American consumers want.

“We’ll have more utilities,” Shanks said. “We will be simplifying, if you will, our participation in the car segments to move into sub-segments that have more margin and are more attractive.”

Read more: Detroit ditching cars to mint money off trucks

GM surprised Wall Street earlier Tuesday by predicting steady profit this year to be followed by another earnings jump in 2019. A redesigned Chevrolet Silverado pickup and fresh crop of crossovers are helping fund CEO Mary Barra’s ambitious plans to put robo-taxis on the road in a ride-sharing fleet next year and roll out 20 all-electric models by 2023.

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