Motor Co. provides investors with a mixed bag for 2005, saying first-quarter financial results will be much weaker than anticipated, while the full year should be on track with 2004.
The world’s No.2 auto maker says it expects first-quarter production to slip to 920,000 units in North America, an 88,000-unit decline from like-2003.
Europe will see output cut by 8,000 units to 460,000 during the period, while production at’s tarnished Premiere Automotive Group luxury brands should decline by 12,000 units to 200,000.
The production shortfalls and expected model changeovers during the quarter should result in a weak $0.25-$0.35 earnings per share, Ford Chief Financial Officer Don Leclair tells analysts and investors during a conference call.
“We expect it to be a little worse in the first-quarter than a year-ago, with improvement coming later in the year,” he says.
While competitive pressures will remain intense across all major global markets, Ford says it expects full-year financial results to fall within the $5 billion-$5.7 billion range, slightly below the $5.8 billion reported in 2004.
The automotive portion of Ford’s business should post significant improvements in 2005, with profits accelerating to $1.5 billion-$2 billion, a sharp increase from $900 million in 2004, while financial services profits are seen dipping to $3.5 billion-$3.7 billion compared with prior-year’s $4.9 billion.
Ford Motor Credit Co. says it expects to report weaker results this year due to rising interest rates and a revised focus on growing its finance business within Ford automotive brands.
Leclair says Ford’s automotive operations will benefit from a slight improvement in overall mix in 2005, resulting in a positive gain of $900 million during the year. Maybe most surprising, the CFO says he expects Ford to post a $1.1 billion gain in net pricing during the year.
Overall automotive operations cost performance will be “flat,” he adds, due to rising raw material costs, while the weak U.S. dollar could result in a $600 million drag in automotive earnings during the year.
Another negative comes in the form of higher health care, pension and other legacy costs, particularly in the U.S. and Europe. “Pension and health-care costs are headwinds,” Leclair says. “This is a significant cost issue for us and the entire industry.” (See related story: The Health Care Crisis)
Ford Chairman Bill Ford says the auto maker will focus on more than just financial improvement during the year, with product quality and customer satisfaction among the other prime drivers for 2005.
“We are not going to let up on quality and costs or any of the fundamentals of our business, not in 2005, or ever,” he says.
“We won’t grow our share by pushing our volumes into rental fleets (and) by mid-decade will have launched 150 new products. We’re going to take advantage of these new products…to grow our business profitably.”
PAG (including Jaguar, Land Rover,and Volvo) is expected to post the most significant turnaround in 2005, with profits reaching $450 million, a vast change from the $740 million loss reported in 2004.
The improvement will come on the back of gains in overall product mix, as well as net pricing and further cost reductions, the auto maker says.
Ford President and COO Jim Padilla
New products, including the Range Rover Sport, Volvo Cabriolet and Jaguar XJ Diesel, should provide added foundation for the luxury group’s recovery during the year.
Increased commonality between PAG and non-PAG product development teams also should provide added benefits, says Jim Padilla, Ford’s chief operating officer.
He points to the joint development of the upcoming Ford Focus Cabriolet and Volvo Cabriolet as examples of how the auto maker can create synergies without diluting brand distinctions.
Padilla tells analysts Ford will continue on its commonality drive, noting the CD3 platform (used in the Mazda6, Ford Fusion, Mercury Milan and Lincoln Zephyr) as another example of wide spread sharing throughout Ford’s product development teams.
He says the Mazda6 and Fusion share 57% common parts, while the Fusion and Milan have 90% common components; Fusion and Zephyr 72%.
“We’re using more commonality with very distinctive products,” Padilla says. “We’re not jamming them (the new products) into the market place, which forces us to discount them.”