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Ford’s 2015 pretax profit jumps on stronger sales

January 28, 2016

DEARBORN, Mich. (AP) — Higher sales in most of the world helped Ford Motor Co. achieve a record pretax profit in 2015, but investors remain skittish that the good news won’t keep coming.

Ford’s pretax profit jumped 48 percent to $10.8 billion, the highest in its 112-year history. The company’s U.S. sales hit their highest level in a decade, and the F-Series pickup remained the best-selling vehicle in the U.S. for the 34th straight year. Ford reported a profit in Europe for the first time in four years, and profits in Asia jumped 29 percent. A change in the way Ford accounts for its pension costs also boosted pretax results.

Bob Shanks, Ford’s chief financial officer, said 2015 was the “breakthrough year” Ford promised after it spent heavily in 2014 to build new plants in Asia and bring a new, aluminum-sided F-150 pickup to market in the U.S. The company expects this year’s pretax profit to be equal or higher.

Shanks said he agrees that the U.S. market — which saw record new-vehicle sales of 17.5 million last year — is plateauing, but it could stay at that high level for several years. Low oil prices, low interest rates and a growing housing market all bode well for continuing strong sales.

Shanks said Ford’s growing business outside the U.S. should also comfort investors. He said more than half of the $1.3 billion increase in Ford’s operating profit in the fourth quarter came from regions outside North America.

“We have a very strong, robust structure, so if and when there will be a downturn — and at some point there will — we’re very well prepared to manage that and continue to be profitable and continue to pay our regular dividend and continue to invest in the business,” Shanks said.

Shanks said one metric — cash flow — will fall this year because of increased engineering costs and the expense of bringing a new aluminum-sided Super Duty truck to market. He also said Ford will be spending more on mobility projects such as experimental ride-hailing services.

Ford’s full-year net income jumped to $7.4 billion from $1.2 billion in 2014. Excluding one-time items, such as $600 million in employee separation payments, Ford earned $1.93 per share. Analysts polled by FactSet were expecting full-year earnings of $1.73 per share.

Ford’s revenue rose 4 percent to $149.6 billion for the year, also beating forecasts. Global sales rose 5 percent to 6.6 million.

Ford also said it will make a record profit-sharing payment of $9,300 to each of Ford’s 53,000 U.S. hourly workers.

Efraim Levy, an analyst with S&P Capital IQ, reiterated his “strong buy” rating on Ford stock and said investors were overreacting. Even if U.S. auto sales slow this year, he said, buyers are likely to favor SUVs and trucks, which helps Ford and other Detroit brands. He also expects sales growth in Europe and China.

Still, Levy lowered his target price on Ford’s stock by $2 to $17 to reflect the plateauing market.

“Traditionally these companies look cheap at the top and expensive at the bottom,” he said.

North America drove Ford’s results, with a full-year pretax profit up 26 percent to $9.3 billion. Ford’s full-year operating margin for North America reached 10.2 percent, up from 9 percent in 2014 and within Ford’s ideal range of 8-10 percent.

Ford reported its highest-ever full-year pretax profit of $765 million in its Asia Pacific region and eked out a $259 million profit in Europe and a $13 million profit in the Middle East and Africa. South America remained weak, with an $832 million loss, but Shanks noted that even in that volatile region, Ford managed to command higher prices.

“We really started to see the international operations start to come forward,” Shanks said.

Ford shares fell 18 cents to $11.67 in afternoon trading Thursday.

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