Ford Held Back by Launch Costs, Recall Charge
We maintain our fair value estimate for the automaker despite continued headwinds.
We are not changing our fair value estimate on
EPS fell by 50% year over year as dealer stock reductions in North America and Europe, fixed cost increases, and a $599 million recall charge for door latches easily negated a $616 million favorable pricing variance from vehicles such as the new Super Duty pickup. Automotive operating margin declined by 440 basis points to 3.3% but was 5% excluding the recall. The key North American segment saw its pretax income fall by 57% to $1.3 billion due to an 11% decline in wholesale volume, Super Duty launch costs, the door latch recall, and higher material costs.
Europe had its best third quarter pretax income since 2007 and even had an $88 million positive earnings variance from foreign currency due to the company being mostly hedged this year prior to June’s Brexit vote. That protection will not be there next year, and management in September guided to about a $600 million earnings headwind from Brexit in each of 2017 and 2018. The Asia-Pacific unit posted a record third quarter with good results in many markets, and equity income from Chinese joint ventures rose 26.5% year over year to $340 million. Year-to-date Chinese equity income is up 3.4% to $1.059 billion. Ford Credit had its best quarterly profit in five years. Write-offs and delinquencies did rise year over year, by 11 and three basis points, respectively, but are nowhere near a level that would make us worry.
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