Ford Motors has issued a profit warning that its profits in the first quarter of 2017 will decrease by approximately 50%. The company attributes this reduction in profit to declining sales in the world, in addition to weaker pricing and geopolitical events in the world such as Brexit. The announcement led to a plunge in Ford’s shares by 1.1%, while shares of rivals such as General Motors, Toyota, and Fiat Chrysler were also depressed.
In 2016, Ford had issued a report showing that there was a slight rise in sales in Asia. The increased sales in the region were enough to compensate for the falling sales in the North American region. However, due to weaker pricing in other markets as well as declining sales in Asia, compounded by Brexit in Europe have dented hopes of a first quarter profit bump.
In its brief to Wall street, Ford estimates that shareholders should expect to enjoy a profit of between 30-35 cents per share, instead of the 47 cents per share that analysts widely expected the company to bring home at the end of the quarter. This is in stark contrast to the company’s performance in the first quarter of 2016 when it earned 68 cents per share and had a pre-tax profit of $3.8 billion. In a statement in 2016, Ford marked the first quarter of 2016 as one of its best quarters on record.
The silver lining in the dark cloud of news that investors have received is that the company has not changed its forecast for 2017. Ford still states to be on course to making a pre-tax profit of about $9 billion this year. However, this is less than the $10.4 billion the company made in 2016.
The Chief Financial Officer of Ford, Bob Shanks hosted a talk with Wall Street analysts this week, explaining why the company would record a lower first-quarter profit than expected. He laid blame on the increasing cost of commodities such as steel, as well as increasing engineering costs and warranty costs. However, Shanks intimated that the company would improve in 2018, making the promise that pre-tax profits would surpass the gains made in 2016.
Shanks also pointed out to the changing political landscape in the country, noting that the Trump administration’s proposed changes would lead to a huge impact on the auto industry. Shanks noted that the outcome of the vote in Congress on the Republican health care plan would have a ripple effect on the economy and the auto industry as well. He commented, “Whatever comes out of that…. could have a big impact on all of the other things the administration wants to accomplish.”
Ford is also committed to promoting fuel efficiency and reducing the levels of emissions produced by its vehicles and products. This is despite the Trump administration showing signs of wanting to ease regulations and legislation covering fuel efficiency and emissions. He remarked, “We are not asking for or seeking, any kind of rollback in terms of the direction we want to head.”
