Tags: gm | ford | outlook | warnings

GM Gives Flat Outlook as Ford Warns Turnaround to Take 2 Years

GM Gives Flat Outlook as Ford Warns Turnaround to Take 2 Years
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Wednesday, 17 January 2018 07:11 AM

Ford Motor Co. on Tuesday estimated financial results for 2017 and 2018 that fell short of investor expectations, while rival automaker General Motors Co. said 2018 earnings will be largely flat compared with 2017.

Ford Chief Financial Officer Bob Shanks told analysts at an investor conference in Detroit that higher costs for steel, aluminum and other metals, as well as currency volatility, could cost the company $1.6 billion in 2018. Cost-cutting actions are under way and will have the biggest impact "in 2020 and later," Shanks said.

"We are not satisfied by our performance," he said. "We are excited about our future."

Ford's president of global markets, Jim Farley, said the company's business structure was "out of sync with our revenue," and vowed to cut costs by sharply reducing the variants of high-volume Ford models and slashing marketing costs by $200 million a year.

Farley hinted at possible significant changes in the structure of Ford's money-losing South American business.

"We are exploring every option you can imagine,” Farley told analysts and investors at a conference on the sidelines of the Detroit auto show.

To boost revenue, Farley said Ford would decrease its passenger-car models and develop more trucks and sport utility vehicles aiming at profitable niches such as rugged off-road models.

Ford shares dropped more than 2 percent in extended trading after the release of the forecast, but later recovered most of the losses. Ford said it would pay shareholders an extra dividend of $500 million, or 13 cents a share, for the first quarter.

Differing outlooks for 2018 from GM and Ford highlighted how the two largest U.S. automakers have been on diverging roads for the past year.

GM Chief Executive Mary Barra has led a dramatic overhaul of the No. 1 U.S. automaker, selling its unprofitable European operations, exiting troubled Asian markets and giving the green light to investments in self-driving vehicles and an expanded portfolio of electric vehicles.

GM projected 2018 results in line with the $6.00 to $6.50 a share adjusted earnings forecast for 2017, and promised higher profit in 2019 when its revamped line of high-margin pickup trucks hits the U.S. market.

GM forecast 2017 earnings per share at the high end of its previously forecast range of $6 to $6.50. The company expects earnings for 2018 to be roughly the same as in 2017. Analysts have predicted full-year 2017 earnings per share of $6.30, and $5.98 a share in 2018.

“If the guidance is as positive as we interpret it, this could be the positive catalyst that we expected, and sets up a solid ’18,” Barclays analyst Brian Johnson wrote in a client note.

The company and its Detroit rivals, Ford and Fiat Chrysler Automobiles NV, are bringing on new trucks at a time when overall U.S. new vehicle sales have been falling, but truck sales continue to grow as consumers abandon passenger cars in favor of pickups, SUVs and crossovers.

President Dan Ammann said GM’s new line of pickups should generate improved profit from increased production of higher-priced, four-door crew cab trucks, and expanded sales of luxury truck models.

GM said in a presentation on Tuesday its Denali line of luxury pickups has average transaction prices of about $55,600, higher than the average for Daimler AG’s Mercedes-Benz brand, or GM’s own Cadillac luxury brand.

Chief Executive Mary Barra said during a meeting with reporters the automaker will boost investment in electric vehicles, but declined to say by how much. Rival automakers have used the Detroit auto show to tout multi-billion dollar investments in electrification.

GM said it expects capital expenditure in 2018 of around $8.5 billion, about $1 billion of which will go toward self-driving car technology. In future years, Chief Financial Officer Chuck Stevens said total capital spending should decrease.

Last week, the company said it was seeking U.S. government approval for a fully autonomous car - one without a steering wheel, brake pedal or accelerator pedal - to join GM’s first commercial ride-sharing fleet in 2019.

Barra also said GM will not follow other companies that have given employees special bonuses tied to tax cuts by the administration of U.S. President Donald Trump, which slashed the top U.S. corporate tax rate.

Instead, Barra said if GM has higher profits because of lower U.S. taxes, GM employees, including union-represented U.S. factory workers, should see larger bonuses or profit-sharing checks based on existing pay formulas.

In a client note, Buckingham Research Group analyst Joseph Amaturo wrote that GM’s 2018 earnings outlook includes a “lower statutory corporate tax rate, so on an apples-to-apples basis, this appears to be an effective EPS guide down.”

“We believe the stock will fade after investors understand that the implied EPS guide is for a year-on-year decline, as we and consensus are forecasting,” Amaturo wrote.

GM faces challenges in 2018 from the costs of launching the new large pickup trucks, rising interest rates in the United States and a likely decline in overall U.S. vehicle sales, Stevens said.

However, Stevens said wage growth could offset the impact of higher interest rates for consumers buying vehicles.

Barra, Ammann and Stevens declined to say when investments in self-driving vehicle services and electrification will return profits. They pointed to the potential for new trucks and SUVs, a new, low-cost car for international markets, and the Cadillac luxury brand, to improve future earnings.

Cadillac profits should double from current levels by 2021, GM said, riding growing sales in China and new products planned for the United States to replace a current crop of slow-selling sedans. Stevens did not disclose current profit figures for Cadillac.

GM said on Tuesday that while it retools a factory in Ft. Wayne, Indiana, to make the new pickup trucks, it will shift some production to an Oshawa, Ontario, plant in order to build up to 60,000 vehicles and avoid missing sales.

The No. 1 U.S. automaker said it will record a $7 billion non-cash charge for its fourth-quarter 2017 earnings related to deferred tax assets that will lose their value because of the lower U.S. corporate tax rate.

GM shares closed up slightly on Tuesday, after rising about 2 percent earlier in the day. GM shares are up 18 percent from a year ago.

Meanwhile, Ford shares are up only about 4 percent from a year ago. In May, Ford's board ousted Chief Executive Mark Fields and named Jim Hackett, who was known as a turnaround expert and had been leading Ford's unit developing self-driving vehicles, to replace him. Hackett has promised to slash Ford's product development costs by $14 billion and has launched reviews of the vehicle lineup.

Ford's forecast reinforces Hackett's warning to investors last fall that the cost-cutting and product strategy changes could take time.

For full-year 2017, Ford said adjusted earnings would be $1.78 per share, below analysts' estimate of $1.83, according to Thomson Reuters I/B/E/S. For 2018, Ford expects adjusted earnings of $1.45 to $1.70 per share. Analysts on average expected earnings of $1.62.

In a nod to the importance investors are placing on alternatives to traditional auto manufacturing, Ford said it would start reporting separately the results of its investments in "mobility" businesses, such as self-driving delivery vehicles and ride services, and previewed a loss for those operations of $300 million for 2017.

Shanks said Ford's mobility services business is a separate legal entity and reporting results gives the automaker "options down the road." Some analysts have advocated that Ford create a separate class of shares to allow investors to put money into a technology-focused growth business.

Ford's highly profitable F-series large pickup franchise will face aggressive challenges from GM and Fiat Chrysler Automobiles NV , as those rivals crank up their own respective production of new generations of large pickups. GM's new Chevrolet Silverado and Fiat Chrysler's 2019 Ram are both designed to chop at the F-series' lead as the best-selling vehicle line in the United States. 

© 2019 Thomson/Reuters. All rights reserved.

   
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Ford Motor Co. on Tuesday estimated financial results for 2017 and 2018 that fell short of investor expectations, while rival automaker General Motors Co. said 2018 earnings will be largely flat compared with 2017.
gm, ford, outlook, warnings
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2018-11-17
Wednesday, 17 January 2018 07:11 AM
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