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Ford Lowers 2016 Pre-Tax Profit Forecast on Expanded Recall

September 8, 2016

General Views Ahead Of Domestic Vehicle Sales FiguresGeneral Views Ahead Of Domestic Vehicle Sales Figures
A line of Ford Focus vehicles sit on display at the Uftring Automall in East Peoria, Illinois, U.S.Photograph by Bloomberg via Getty Images

Ford Motor Co. lowered its 2016 adjusted pre-tax profit forecast to $10.2 billion from the at least $10.8 billion it forecast in July because of a $640 million charge for an expanded vehicle recall, the company said on Thursday.

The recall is for side-door latches that may come unhinged while vehicles are in motion. It was expanded on Thursday by 1.5 million vehicles to 2.4 million vehicles.

“With this expanded (recall), we now expect our 2016 total company adjusted pre-tax profit to be about $10.2 billion. We continue to expect our total company adjusted pre-tax profit in the third quarter of 2016 to be about 10 percent of our full-year 2016 results,” Ford said in a filing with the U.S. Securities and Exchange Commission.

That would suggest a third-quarter adjusted pre-tax profit of about $1 billion, down about 60 percent from $2.7 billion a year earlier. Last year, Ford set a company record for any third quarter’s adjusted pre-tax profit.

Ford (F) said in July that the second half of 2016 will not be as profitable as the first half of this year, when it recorded $6.8 billion of adjusted pre-tax profit. That is partly because of beneficial factors that will not reoccur in the second part of the year and the expense of the rollout of Ford’s highly profitable Super Duty large pickup trucks.

Ford shares on Thursday morning were down nearly 0.5 percent at $12.64 in New York trading.

When it issued second-quarter financial results in late July, Ford said its 2016 adjusted pre-tax profit would be equal to or greater than last year’s $10.8 billion.

Ford said the new expense will show in its third-quarter results and primarily in North America, its most profitable region which has been driving record company profits recently.

The company has recalled nearly 4 million vehicles for door latch issues in six separate recalls since 2014.

Ford said the latest expansion was at the request of the U.S. National Highway Traffic Safety Administration after the automaker in August issued a regional recall covering 830,000 vehicles.

The recall includes the 2013-15 Ford C-MAX and Ford Escape, 2012-15 Ford Focus, 2015 Ford Mustang and Lincoln MKC and 2014-16 Ford Transit Connect.