Cleveland, Ohio – Despite a slight increase in revenues, Ford Motor Co.’s adjusted earnings plunged 42.1% in the first quarter of 2017 to $2.2 billion as big investments in future products, higher warranty costs, and higher commodity prices sapped profits.
“This quarter was an investment in Ford’s future,” Ford President and CEO Mark Fields said. “From announcing exciting vehicles like the all-new Expedition and Lincoln Navigator, to initiatives such as our investment in Argo AI, we are fortifying our core business, while also investing in emerging opportunities that will deliver profitable growth.”
The two biggest factors in Ford’s profitability drop were a $362 million increase in engineering costs related to new products and technologies and a $429 million increase in material costs – $176 million for higher commodity costs and $253 million for non-commodity materials.
For the full year, Ford expects to earn about $9 billion, making Q1’s performance in line with what the company expects for the full year. If Ford hits that target, 2017 earnings would be 13.5% lower than 2016’s.
On the positive side, revenues were up even though vehicle unit sales were down. Demand for pickups in the United States means more revenue per vehicle, and Ford’s F-150 sales have trended toward higher-end, feature-rich, expensive models.
In North America, Ford’s largest and most profitable region, revenues were flat, market share fell slightly as the company dialed back fleet sales, and operating profit margins plunged to 8.3% from 12.9% a year ago. Of Ford’s profitable regions (it lost money in South America and Africa), North America had the biggest decline in profitability.
While the numbers overall were challenging, Ford executives have been warning for months that 2017 was going to be a tougher year because of the pace of new products and plant investments. The company’s earnings were slightly better than analysts had expected, though share prices fell slightly.
General Motors plans to release its Q1 2017 earnings on Friday. Earlier this week, Fiat Chrysler Automobiles (FCA Group) announced $730 million in Q1 earnings, up 27% from 2016. Growing international sales for Jeep vehicles helped drive profits higher.
In the U.S. FCA officials are predicting annual sales of 17.5 million for the industry, down very slightly from 2016’s sales but still at historically high levels.
About the author: Robert Schoenberger is the editor of Today’s Motor Vehicles and a contributor to Today’s Medical Developments and Aerospace Manufacturing and Design. He has written about the automotive industry for more than 17 years at The Plain Dealer in Cleveland, Ohio; The Courier-Journal in Louisville, Kentucky; and The Clarion-Ledger in Jackson, Mississippi.