North American Buyers Couldn't Prop Up Ford's Global Business in the Last Quarter

China, Europe, and South America all conspired to sink Ford’s profits in the third quarter of 2018, with the automaker posting a 37 percent net income drop compared to the same quarter a year ago.

The earnings report came the same day Ford announced the creation of a standalone Chinese business unit, Ford China. Dismal overseas performance didn’t come as a shock, however, as these headwinds were also felt in previous quarters, albeit not as strongly. That hasn’t stopped a barrage of questions directed at CEO Jim Hackett over how he plans to build a successful operation outside of America’s borders.

In Q3 2018, Ford Motor Company’s net income came in at $991 million, down from $1.6 billion in Q3 2017. Revenue was up, though, by just over a billion dollars. High ATPs and beefy margins in the truck-heavy North American market can take credit for that balance sheet bright spot.

While Ford’s pre-tax profit in North America rose in spite of a year-to-date drop in vehicle sales, head east or west from the American coastline and red ink abounds.

The only overseas businesses to see an income gain were the Middle East and Africa (up $47 million on a pre-tax/pre-interest basis, a turnaround compared to Q3 2017), and the part of the Asia-Pacific region that doesn’t include China. The latter region, which turned a profit last year, lost Ford $208 million, all because of cratering Chinese volume. Europe was also dismal, with that troubled unit posting a $245 million loss.

Ford finds itself in the middle of a $11 million streamlining plan designed to winnow the automaker’s global white-collar workforce and boost profitability in all regions. There’s product plans afoot for Europe and China. Still, Hackett didn’t have anything new to add about the anticipated layoffs during an earnings call.

New details won’t arrive until the second quarter of 2019, he said, adding that evidence of the turnaround can already be seen in the company’s North American margins.

“What I remind everybody of is we first have to find the areas that need the attention,” Hackett said. “We’re through that. We then have to design the solutions for them. We’re through a lot of that but not all of it. And then we have to put them in place and perform. If you read hesitancy from me, it’s not that we don’t know where we’re going or don’t know how to do it, it’s that there’s a massive undertaking that we have to have very thoughtfully orchestrated. Because my experience in doing this, the worst thing we could do is disrupt our business and we aren’t going to do that.”

Restructuring aside, there’s no bad news at Ford Credit, which recorded its most profitable quarter in seven years — a result spurred by less leasing and big-buck auction values for off-lease vehicles.

Still, despite the company’s health in North America, the overseas uncertainty meant Ford was forced to dial back its prediction of an 8 percent pre-tax profit margin by 2020. That’s now pushed ahead to a later date. Investors didn’t seem to mind, though. After Ford affirmed the company’s dividend, the automaker’s stubbornly depressed stock rose over 8 percent in Thursday trading.

[Sources: CNBC, The Motley Fool] [Image: Ford]