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Ford underlined investor concerns about cyclical downturn in the American auto industry on Thursday after it announced first quarter earnings that were sharply down on the year earlier period as new car demand sagged in the US after a record 7 years of growth.
For the three months to end of March, adjusted earnings per share came in at 39 cents, compared to the 68 cents reported in the prior year period. However, the figure was still well above the company’s previous guidance of 30-35 cents a share, and the beat helped sent shares in the Detroit carmaker up 2.2 per cent in pre-market trading.
Total revenues were up 4 per cent to $39.1bn but adjusted pre-tax profits fell $1.6bn to $2.2bn mostly due to higher warranty costs, unfavourable exchange rates and investment in new technology areas, and rising commodity costs.
Ford left full year guidance unchanged with adjusted pre-tax profit forecast at $9bn, down from $10.4bn last year. Investor concern has risen over the long term profitability of an industry which must invest heavily in new technologies like electrification and autonomous driving as it transitions away from the internal combustion engines.
“This quarter was an investment in Ford’s future,” Mark Fields, Ford chief executive said in a statement, adding “ we are fortifying our core business, while also investing in emerging opportunities that will deliver profitable growth.”
Ford had warned last month that profits would be much lower than the market forecast at that time, because of slowing demand and rising costs.
Most US auto market analysts expect auto sales to fall year-on-year in April. Kelley Blue Book said it sees “a greater likelihood that 2017 will be the first down year since 2009”.
“The industry has been holding its breath to see if the days of peak sales are over, and while Q1 sales managed to remain stable, we’re starting to see the slowdown in 2017 we’ve been anticipating,” said Jessica Caldwell, of Edmunds. “These year-over-year declines may become more typical as the year progresses, but there’s no reason to be in panic mode. Historically, car sales are still strong.”
“A collapse in the auto cycle is not imminent,” said auto analyst Brian Johnson of Barclays.
Kelley Blue Book said it expects Ford US sales to fall 5.5 per cent in April, in line with declines in US sales from many other automakers but well below the 0.6 per cent decline forecast for rival General Motors.