Financial Performance

Ford’s Profit Dips 35% on Increased Costs

"Basically, the cost increase for the full year has happened in the first quarter," CFO Bob Shanks says.
Matthew HellerApril 27, 2017
Ford’s Profit Dips 35% on Increased Costs

Ford Motor’s profit in the first quarter of 2017 fell more than one third from last year’s record quarter but the company maintained its profit outlook for the whole year.

The automaker on Thursday reported $1.6 billion in profit compared to $2.4 billion in the year-ago period. Revenue was up 4%, at $39.1 billion, while earnings per share totaled 39 cents, topping Wall Street estimates of 36 cents.

Ford attributed the decline in profit to higher costs along with a slight decrease in market share and lower net pricing that was caused by higher incentive spending.

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CFO Bob Shanks said costs rose $1.2 billion during the quarter compared with the same period a year ago. They included a $467 million increase in warranty costs, a $176 million increase in commodity costs, and a $253 million increase in product launch costs.

“Basically, the cost increase for the full year has happened in the first quarter,” he said in an earnings call.

Industry incentives are rising as automakers tap the brakes on production and reduce inventory amid an industry-wide sales decline. After two consecutive years of record U.S. car and truck demand, auto company executives have predicted that 2017 will be a year of transition.

“We delivered a solid quarter and we continue to expect a good year this year,” Ford CEO Mark Fields said. “We remain fully focused on our strategic priorities that will drive value as we drive our transformation to an automotive and a mobility company.”

As the Detroit Free Press reports, Ford continues to make most of its profit in North America, where it earned a pre-tax profit of $2.0 billion for the first three months of the year compared with $3.1 billion last year.

The company said it still expects full-year profit to be about $9 billion. “Ford’s balance sheet remains strong — ready and able to support our plans for growth and to protect against adverse changes in the business cycle,” Shanks said.