DETROIT — Ford will pay $6,900 in profit sharing to its 50,180 United Automobile Workers employees based on North American profits after the automaker reported global earnings of $3.2 billion for the year after a rough fourth quarter.
Fourth-quarter net income was down substantially to $52 million from $3 billion a year ago and revenue fell to $35.9 million but pretax earnings of $1.1 billion exceeded Wall Street’s expectations. Earnings per share of 26 cents exceeded Wall Street’s expectations by 3 cents but it is still a big drop from 31 cents a year ago.
For the full year, Ford earned $3.2 billion, down from $7.2 billion in 2013. Executives had warned investors that the high cost of recalls, new product launches, losses in Europe and currency issues in South America would pull down earnings. Pretax earnings of $6.3 billion, while substantially below $8.6 billion a year ago, still beat analyst expectations.
“2014 was a solid yet challenging year,” said CEO Mark Fields, citing investments and the cost of product launches. The 24 new vehicles introduced around the world in 2014 – one more than anticipated with the year-end launch of the Ford Escort in China – should pay off this year. “2015 is going to be a breakthrough year for Ford.”
Overall guidance for 2015 remains unchanged, with pretax profits of $8.5 billion to $9.5 billion, Fields said, but higher auto cash flow than in 2014. And revenue, operating margins, volume, market share are all projected to increase.
The key figure for auto workers is the $6.9 billion pretax profit earned in North America because the profit-sharing formula, negotiated with the UAW, awards $1 for every $1 million of profit, excluding special items. That puts the average at $6,900, before taxes, and it is applied according to the number of hours each employee works.
The amount falls short of the $8,800 record profit-sharing amount given to 47,000 workers last year and has fluctuated widely over the years. At the other end of the spectrum, the company’s performance did not trigger payouts from 2005 through 2008.
Ford’s 32,662 North American salaried workers will get a bonus this year. It varies by individual and Ford does not release the range or average of the payouts. Many of these workers will also get a merit pay increase this year.
Profit-sharing and bonus payments will be distributed March 12.
North America remains the profit driver for Ford. The region earned $1.5 billion in the fourth quarter and $6.9 billion for the full year, with a profit margin of 8.4 percent.
There were 16 new vehicles introduced for North America including the new Mustang and the F-150 pickup which requires new body shops at the Dearborn and Kansas City, Mo., plants to make the truck body out of aluminum. Lost production during retooling created tight inventories of a hugely profitable vehicle which took a big bite out of the bottom line.
Fields said the third crew of workers has been recalled at the Dearborn Truck Plant and they are close to reaching full production while at the Kansas City, Mo., plant, the new equipment has been installed and is being debugged before the three crews are called back to work.
Fields said the changeover will affect first-quarter results but F-Series sales in January should be the best since 2004 and the new F-150 is selling as soon as it hits lots and early sales are a rich mix with customers buying highly contented versions.
Bernie Ricke, president of UAW Local 600 which represents Dearborn Truck employees, said the final workers returned to work last week and his understanding is that efforts to retool Kansas City are running a week or two ahead of schedule.
The other area hurting results is warranty costs which increased by $1.3 billion in 2014 – $900 million of that was recall costs including $500 to recall 850,000 vehicles for defective air bags. Ford does not release total warranty costs until full disclosure documents are released in mid-February but it will be in the $4 billion range, said Chief Financial Officer Bob Shanks.
In Europe, Ford has been restructuring operations for years under a plan designed to break even by now, but the projections were scuttled by the slow turnaround of the region and problems in Russia where Ford has invested heavily. Ford instead lost $443 million in the fourth quarter and $1.1 billion for the full year.
With continued headwinds in Europe, especially Russia where Ford has invested heavily, the automaker expects losses this year to be more than the $250 million forecast provided in October but less than 2014 losses. “We clearly think we’ll do better in 2015 but we won’t make a profit,” Shanks said. “We bet heavily on Russia.”
Fields and Shanks declined to say when Ford might break even in Europe, but it appears it will be later than Fiat Chrysler Automobiles which turned a profit in the fourth quarter and expects to maintain that, and General Motors which expects to be in the black by next year. “The big difference is probably Russia,” Shanks said of the region hurt by geopolitical issues and devaluation of the ruble.
With Russia sales of less than 2 million, Ford no longer projects the region to hit sales of 4.5 million by the end of the decade. But Ford senior management expects Russia to be a major market in the long run and thinks its presence there will pay off.
Another problem area is South America where economic instability and currency devaluation in some countries has played havoc with those trying to do business there. Ford took a one-time charge of $800 million in the fourth quarter as it removes Venezuela from its consolidated financial results because the country won’t exchange bolivars and dollars. The accounting change reduced net income in the region by $700 million. That accounted for most of the $187 million loss for the quarter. For the year, Ford lost $1.2 billion in South America. More losses are expected this year.
Middle East & Africa narrowed its losses in the fourth quarter to $82 million and for the full year the region lost $20 million. Losses are projected again this year.
Asia Pacific is the only other region that turned a profit and it has reached its best market share at 4.5 percent which should continue to grow with a new assembly plant and new engine plant coming on line this year and new products such as the Ford Escort. The automaker earned $95 million for the quarter and $589 million for the full year with an expectation of higher profits in 2015 with growth projected in China and India.
Ford Credit earned a pretax profit of $1.9 billion; its best since 2011.
Fiat Chrysler Automobiles reported a full-year net income of $717 million on Wednesday but North American results for the Auburn Hills division that will determine profit sharing checks for Chrysler workers won’t be released until Tuesday. The amount is expected to exceed last year’s $2,500.
General Motors reports its earnings on Wednesday and the high cost of recalls is expected to result in a lower payment than last year’s $7,500.
