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Customer LoginsFord delivers second-highest adjusted pre-tax profit during 2016 despite Q4 loss
Ford delivered another full year of profitability, despite a loss in the fourth quarter due to a change in accounting for pensions.
IHS Markit Perspective
- Significance:Ford delivered another full year of profitability despite a loss in the fourth quarter. Full-year 2016 automotive operating margin slipped to 5.7% globally and 9.7% in North America. Wholesale volume globally was even with 2015, at 6.6 billion vehicles.
- Implications:Although these are more difficult results than Ford has recently posted, the company remains healthy and profitable. Full-year adjusted pre-tax income of USD10.4 billion was the second-highest on record, behind only 2015 results.
- Outlook:A loss in the fourth quarter, resulting from an accounting change, pulled full-year income down and put the fourth-quarter itself into a loss. Flat full-year deliveries resulted in the company's global market share slipping, although revenue did show improvement over 2015.
Ford was unable to deliver a 30th consecutive profitable quarter in the fourth quarter of 2016, although it did deliver its second-highest adjusted pre-tax profit, with USD10.4 billion. The fourth-quarter loss was blamed on a change in accounting for pensions, announced in January 2017. Quarterly pre-tax profit dropped from USD2.6 billion in the fourth quarter of 2015 to USD2.1 billion, with a loss of USD783 million and automotive operating margin of 5.7%, compared with 6.1% in the fourth quarter of 2015. Global wholesale deliveries declined to 1.70 million units in the fourth quarter, but were even for the year. Fourth-quarter revenue fell to USD36.0 billion, although full-year revenue did show a gain. The automotive operating-related cash flow was USD1.5 billion in the fourth quarter, and gross cash increased to USD27.5 billion from USD23.6 billion in the fourth quarter of 2015.
In 2016, Ford launched 12 new products, compared with 20 in 2015. This meant somewhat reduced expenses, while the company continues to benefit from generally stronger volume and mix on products launched in 2015. However, a change in sales mix affected results, as did the change in pension accounting. In the mobility space, Ford in the first quarter of 2016 created Ford Smart Mobility LLC, and invested in a cloud computing software company called Pivotal in the second quarter of 2016. During the third quarter of 2016, it announced a plan to offer driverless vehicles on market by 2020.
Fourth-quarter results were mixed relative to wholesales and revenues. North America was affected by unfavorable stock changes and lower US market share. Europe was flat compared with a year earlier, but pre-tax results and operating margins were better. South America showed a quarterly improvement, with higher wholesales and revenue enabling improved operating margin and pre-tax results.
Outlook and implications
A loss in the fourth quarter, resulting from an accounting change, pulled full-year income down and put the fourth quarter itself into a loss. Flat full-year deliveries resulted in the company's global market share slipping, although revenue did show improvement over 2015.
Ford said it met its full-year 2016 guidance, which had been revised with the third-quarter results. For 2017, the company forecasts that pre-tax results will slip below the USD10.4 billion of 2016; automotive segment revenue will remain even with 2016's USD141.5 billion; the automotive segment's operating margin will fall to 6.7%; and automotive segment operating cash flow to slip to USD6.4 billion. Ford says the generally lower outlook will be driven by investments in emerging opportunities.
In North America, Ford expects pre-tax profits to be affected by poor volume and mix; emerging opportunities; higher commodity prices; negative exchange impacts and increased costs. For South America, the company projects stronger performance than in 2016, with better net pricing and volume offset by exchange and impacts of costs, including commodities. Ford projects lower results in Europe in 2017, with exchange impacts from the Brexit situation, increased costs, although also improvements in net pricing.
For the Middle East and Africa, the company projects improvements in cost, net pricing and exchange will contribute to a stronger performance, with volume and mix providing offset. Ford also projects better results for Asia Pacific in 2017, with net pricing, exchange issues, and costs for emerging opportunities providing a drag, but better volume and mix as well as costs contributing to the improvement.
About this article
The above article is from IHS Automotive Same-Day Analysis of automotive news, events and trends, and is a deliverable of the World Markets Automotive Service. The service averages thirty stories per day and also provides competitor and country intelligence. Get a free trial.