By Christina Rogers and Mike Ramsey
Ford Motor Co.'s fourth quarter profit jumped on strong results from North America and Asia even as it warned this
year's profit will decline on new product launches and tougher competition.
The Dearborn, Mich., auto maker said fourth-quarter net income rose 90% to $3.04 billion, including a tax-related
gain of $2.2 billion. Pretax operating profit fell $402 million to $1.28 billion, reflecting in part a pretax charge of
$1.6 billion also related to tax issues. Both the net and pretax profit figures were better than analysts had expected.
Revenue for the final quarter rose 4% to $37.6 billion.
The quarter's results underline improving performance in Europe, where its operating loss narrowed, though it swung
to a loss in South America for the period. Ford expects "escalating risk" in South America, particularly in Argentina
and Venezuela this year.
For the full year, Ford's reported net rose 26% to $7.16 billion on revenue of $146.9 billion. It delivered 6.3
million vehicles last year, 662,000 more than in the prior year.
The auto maker reaffirmed an earlier forecast for 2014 of pretax operating profit falling to between $7 billion and
$8 billion, from $8.6 billion in 2013. The auto maker cited higher outlays for new model development and tougher price
competition for the projected decline.
One of bigger expenses this year will be launching an aluminum-bodied version of its best-selling F-150 pickup
truck. Ford has scheduled 13 weeks of plant downtime to prepare for the F-150 model year changeover. The longer-than-
usual shutdown is expected to cut into revenue and profit. Auto makers book revenue when they ship vehicles to dealers.
"When you look at the decline year over year we are looking at in North America, it is largely attributable to the
F-series," Bob Shanks, Ford's chief financial officer, said in a call on Tuesday with analysts.
Mr. Shanks also cautioned that it could be difficult for Ford to raise prices in an increasingly competitive North
American market. In the fourth quarter, Ford said it gained roughly $200 million in pretax profit because of higher
industry sales volumes and increased market share, but it gave up about $100 million in profit to lower pricing compared
with a year earlier. The company at the same time increased spending on engineering, manufacturing and other overhead by
$300 million compared with last year.
"What we are seeing is a more competitive environment in pricing," Mr. Shanks said. "The yen has given the Japanese
as a whole a more competitive base. In our case, we've got so many launches this year so that will have some impact."
Ford ended 2013 with $24.8 billion in cash, reflecting record cash flow of $6.1 billion for the year. The company
will need the cushion, however, as it ramps up global spending to develop and launch 23 new vehicles and open three new
factories this year.
Capital spending for Ford will be $7.5 billion in 2014, up from $6.6 billion in 2013, and operating cash flow will
be positive, but "substantially lower" than last year, Ford said. Mr. Shanks said he expects spending to remain at the $
7 billion a year level for the next several years, but cash flow should improve after 2014.
Ford's North American operation was bolstered by sales of its full-size pickups and by a gain in market share. The
region has carried the auto maker for the past several years, but is facing more competition and higher investment costs
North American pretax operating profit fell 9% to $1.7 billion from a year earlier in the fourth quarter, partly
due to a $300 million increase in warranty costs largely associated with a recall of the Ford Escape. But for the year,
the region produced $8.8 billion in pretax profit, its best profit since 2000.
The earnings in North America means Ford's United Auto Workers union members will get a profit-sharing check of $
8,800. Workers agreed to take profit-sharing checks in exchange for giving up cost-of-living adjustment raises in their
"Fourth-quarter results were good enough to draw a line under 2014, allowing the 2015 story to begin," wrote Morgan
Stanley analyst Adam Jonas in a research report on Tuesday.
Ford's Mr. Shanks cautioned that Ford will continue to have high capital expenses as it enters a period heavy with
new-model launches and completes construction on new factories.
"We have six plants under construction in Asia-Pacific and another one in Brazil that will open up this year," he
Asia-Pacific had a quarterly pretax profit of $106 million, compared with $39 million a year earlier. Sales in
China rose more than 50% in 2013, as Ford began selling a host of new vehicles, including several new sport-utilities
that have sold well.
Losses in Europe narrowed to $571 million in the quarter, as the market has begun to stabilize. Ford has gained
market share with new products, including a small people mover called the B-Max. Ford is restructuring in Europe, an
effort that will reduce production capacity 18% by closing three plants. Two of the plants already have been closed, and
the third will close this year in Belgium.
In South America, Ford's operations swung to a loss of $126 million in the quarter, under pressure from currency
devaluations in Venezuela, which caused Ford to write-down cash assets in the region. Currency gyrations and economic
instability in Venezuela and Argentina are becoming an increasing challenge for all auto makers in South America.
Ford's auto finance arm, Ford Motor Credit, said fourth-quarter pretax profit fell 11% to $368 million, reflecting
lower prices on leased vehicles the unit resold at auction and tighter margins on its loans and leases.
Ford said rising interest rates on bonds as well as a $5 billion cash infusion helped reduce the gap between its
pension assets and projected benefits costs to $9 billion from nearly $19 billion a year ago.
Write to Christina Rogers at email@example.com and Mike Ramsey at firstname.lastname@example.org
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
Copyright (c) 2014 Dow Jones & Company, Inc.