Ford Motor Company Earnings Slump on Weak China Performance, Stock Declines

Despite weak earnings results, the company continues to see solid growth in China and the US in the second half.

Ford Motor Company Earnings Slump on Weak China Performance, Stock Declines

By: Abdullah Saeed Qureshi Published:
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Despite weak earnings results, the company continues to see solid growth in China and the US in the second half

Ford Motors Company (NYSE:F), announced its second quarter fiscal year 2016 earnings results in the after-market hours on Thursday, reporting a 9% year-over-year decline in net profit. Ford's stock fell more than 8% on the day, putting a question mark on the company’s future growth potential.

Net income for the quarter came in at $2 billion, down $190 billion from the same period a year ago, and also well below consensus estimates. Bloomberg analysts predicted Ford to report a net income of $2.38 billion. Similarly, earnings per share (EPS) for the quarter were also down $0.05 when compared with the same period last year. The world’s second largest automaker reported EPS of $0.49, below the consensus estimate of $0.60.

The company said in an official statement, “Decline in industry sales volume, particularly in the United States, Europe, and China due to financial crisis, recession, geopolitical events, or other factors, forced the profits down. " However, the company is poised to return heavy in the next quarter.

Earlier this week, CBN reported that the US based automaker had placed huge bets on Chinese market irrespective of ongoing economic uncertainties in the world’s largest market. Ford rakes in more than $2.67 billion of income from the Asia Pacific region, and China represents an enormous piece of that. As of late, the organization has also spent more than $5 billion in the country to extend its operations and assemble new plants, which could be crucial to future income generation.

However, in the second quarter, the company reported a massive $8 million operating loss in the Asia Pacific region, primarily due to weaker sales and loss of market share in China, the world’s largest auto market.

Ford said, “Results in China were hit by higher costs and a weaker yuan. Wholesales were lower on the back of an eight-week shutdown of a Chongqing plant for upgrades.” Also, pricing pressure in the world’s largest auto market had forced the profits down, said the US based car maker.

Mark Fields, CEO of Ford Motors, remained bullish on the company’s future prospects in the mainland territory despite weakening China sales. He said, “We do expect continued growth in China albeit that's supported by government stimulus measures.”

Mr. Fields also highlighted that the company’s Chinese joint ventures contributed about $300 million of profit on an average, which was down around 28%. Regardless of this, he said, "Ford has extremely solid margins there at 16.1%. That constitutes only a 1.2% decline from where we were this time a year back."

The car maker said that revenues had risen to $39.5 billion from $37.3 a year ago, and first half sales had also reported an 8% YoY surge. In the first half of fiscal year 2016, the US based car maker reported net income of $4.4 billion, representing a 33% surge.

Besides China, the company also failed to deliver impressive results in the North American segment, the company’s largest car market. Although Ford reported 11.3% in operating margin for the region in the second quarter, it was well below the 12.2% figure it reported in the second quarter of fiscal year 2015.

The company also failed to perform in the South American region. It said that all key metrics shifted downward compared to the previous year, reflecting immense pressure and tough external conditions. It also added that the performance was down, “particularly in Brazil where the economy continued to contract and industry volumes declined 22 percent. The higher loss was primarily due to high local inflation and weaker local currencies.”

Analysts opine that the Chinese business sector is getting swamped with more suppliers and less purchasers, and believe that the drop in the Chinese economy has additionally weighed on the nation's automobile sector. Beijing, nonetheless, has deployed stimulus measures including tax breaks and monetary policy easing to revive the economy and boost demand in the auto sector.

On the company’s performance in China, Ford’s Vice President and President of Asia Pacific said, “We continue to see solid growth in China and the US during the first half. Even as the pace of growth slows and the market matures, customers continue to respond well to our products, particularly our world-class SUV line-up.”