January 25, 2018 / 12:38 AM / 24 days ago

UPDATE 3-Ford says commodities prices hurt, needs to be 'far fitter'

(Adds CEO comments, details on Ford’s efforts to improve its “fitness”)

By Nick Carey and Paul Lienert

DETROIT, Jan 24 (Reuters) - Ford Motor Co on Wednesday posted a lower-than-expected quarterly net profit, hurt by rising commodity costs and unfavorable currency exchange rates, and said it expected more pain to come from higher raw material prices in 2018.

Top Ford executives repeatedly stressed in media and investors briefings on Wednesday their focus on improving the automaker’s “fitness” - a mantra of Jim Hackett, who succeeded Mark Fields last May as chief executive officer - but ducked analysts’ repeated requests for more detail.

Chief Financial Officer Bob Shanks said a lack of fitness at the No. 2 U.S. automaker meant that higher commodity costs stood out more than at rival companies that are hitting their numbers, even though Ford is using many of the same hedging tools and strategies.

“We have to be far fitter than we are, regardless of what the future is,” Shanks said, alluding to a previously announced plan to slash $14 billion in costs over the next five years.

Referring to other efforts to improve the company’s fitness, Hackett said Ford in the past eight months had reorganized the business, streamlined the leadership team and accelerated initiatives in electric and self-driving vehicles, as well as shifting investment to trucks and utility vehicles from passenger cars.

“I see operational fitness as much broader than just cost-cutting,” Hackett said, adding that Ford was focusing its “fitness redesign” on improvements in product development, manufacturing and marketing.

Hackett told frustrated analysts that he would share details later this year with investors and shareholders.

The automaker’s shares hit a 12-month high on Jan. 16, the same day it gave a disappointing outlook after the market. Since then, the company’s shares have fallen more than 10 percent, hovering around $12 in after-hours trade.

That decline is a “report card on our fitness,” Shanks said.

Ford has been alone among the major automakers in warning that higher prices for metals like aluminum and steel will take a bite out of earnings, and its shares took a dive last week after executives said they could cost the company $1.6 billion in 2018.

The company’s profitability has also been declining versus its peers. Ford’s automotive operating margin for the quarter fell to 3.7 percent, from 5.7 percent a year earlier.

DECLINING NEW-VEHICLE MARKET

Ford’s battle to improve its margins comes during a declining U.S. market for new vehicles. U.S. sales fell 2 percent in 2017 after hitting a record high in 2016 and are expected to drop further in 2018 as interest rates rise and more late-model used cars come back to dealer lots to compete with new ones.

Rival General Motors Co gave Wall Street analysts a more positive outlook last week, and its shares are up almost 8 percent year to date.

Ford’s fourth-quarter results were driven almost entirely by North America, which accounted for $1.6 billion out of $1.7 billion of pre-tax profits.

The company sold more expensive and profitable vehicles, mainly pickup trucks and SUVs, in North America than in other markets.

CFO Shanks said that around two-thirds of the $400 million currency exchange hit the company took in the quarter was related to Brexit in Europe.

Ford reported quarterly net income of $2.41 billion or 60 cents per share, versus a loss of $781 million or 20 cents per share a year earlier. Adjusted for one-time items, Ford reported earnings per share of 39 cents. On that basis, analysts had on average expected earnings per share of 42 cents.

Ford said its U.S. employees represented by the United Auto Workers union would receive profit-sharing payments of $7,500 each for 2017. (Reporting by Nick Carey and Paul Lienert; Editing by Tom Brown and Peter Cooney)

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