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Ford Motor Co., struggling to roll out its redesigned Explorer sport-utility vehicle, cut its full-year forecast by $500 million, in a sign an $11 billion restructuring by Chief Executive Officer Jim Hackett will take more time before a promised payoff.
The profit warning comes after a rocky quarter for the automaker, with North American profit margins edging down due in part to plunging sales of its cash cow Explorer SUV following a bungled launch. That’s the latest headache for Hackett, who is aiming to reverse Ford’s fortunes by cutting thousands of jobs, refreshing an aging SUV lineup and ditching sedans.
Higher warranty costs, elevated incentive spending in North America and lower China sales prompted Ford to slash its outlook for earnings before interest and taxes to a range between $6.5 billion and $7 billion, down from an earlier estimate of $7 billion to $7.5 billion.
Ford’s shares fell as much as 6% to $8.66 in after-hours trading Oct. 23. They closed as low as $8.54 on Oct. 8.
“Investors have grown impatient,” David Whiston, an analyst with Morningstar in Chicago who rates Ford the equivalent of a buy, said before Ford’s earnings release. “The upside should come late this year and next, when you have more of the new crossovers out. The Explorer is the one thing that seems to be holding things back.”
Even so, the third quarter wasn’t as dire as some analysts expected. Adjusted earnings were 34 cents a share, more than the average estimate of 26 cents. Automotive revenue declined 2% to $33.9 billion, falling just short of the average projection for $34 billion.
“We think Q3 was a good quarter,” Tim Stone, Ford’s chief financial officer, told reporters in Dearborn, Mich. “The progress we’ve made also indicates we have more work to do.”
Sales of the remodeled Explorer, which CEO Hackett pointed to as a key to Ford’s turnaround, plunged by almost half in the quarter as a Chicago plant plagued by personnel problems struggled to get the new model out the door. That came after a downgrade to a junk credit rating in September by Moody’s Investors Service, which cited the slowness of his turnaround.
“That was a very challenging launch for us, and we certainly have many opportunities to improve the launch process,” Stone said. “We’ve taken steps internally to address that.”
The automaker’s third-quarter profit margin in the all-important North American market, which accounts for more than two-thirds of Ford’s revenue, slipped 0.2 percentage points from a year ago to 8.6%. That stemmed from higher incentive spending needed to move more metal out of its showrooms.
”It’s a competitive environment,” Stone said. “And there are some new entrants in the environment in the SUV space and certainly in trucks as well. In that environment, we want to provide outstanding value to customers.”
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