Ford's Profit Drops on Investments for Future Growth

Ford's (F) fourth-quarter earnings beat Wall Street estimates but fell sharply from a year ago, as overseas challenges and the the costs of launching its new F-150 bit into its bottom line.

Ford's net income of $52 million reflected the impact of several one-time items, including an $800 million charge in Venezuela. Excluding those one-time items, Ford made 26 cents a share, beating Wall Street analysts' estimate of 22 cents.

For the full year, Ford earned $6.3 billion before taxes, ahead of the $6 billion it had forecast in September, but down significantly from the $8.6 billion it earned in 2013.

Big Expenses Related to Ford's All-New F-150 and Other Products

Simply put, Ford's earnings dipped in 2014 in part because of overseas challenges, but primarily because the company has cranked up its spending on new products and new factories.

Ford was working on more than 20 new or refreshed products in 2014, led by a ground-up overhaul of its most profitable product, the F-150 pickup. Its aluminum-alloy body panels are an industry first. Also an industry first: Building an aluminum-bodied vehicle in the volumes required for the F-150, an effort that required expensive and time-consuming changes to Ford's two truck factories.

Those changes meant that Ford's Dearborn Truck factory was closed for 12 weeks, reopening in late November. That closure limited supplies of pickups available to Ford's dealers, and that in turn hurt sales (and profits) during the fourth quarter.

The disruption will continue until late spring, as Ford's other pickup factory near Kansas City is closed for its own refitting now. Other new-product launches, including an all-new version of Ford's Edge SUV, will also weigh down earnings in the first half of 2015. But Ford expects to have full supplies of its new pickups by the middle of the year, and its sales and profits should improve substantially after that.

Challenges in Russia and Venezuela Hurt Ford's Profits, Too

Ford's overseas business units are dealing with different challenges. In Europe, Ford managed to improve over year-ago results thanks in part to market-share gains -- but severe economic conditions in Russia have affected Ford's substantial operations there, and will continue to have a negative effect in 2015.

Challenges in Latin America also continue to hamper Ford's efforts there. Currency controls in Venezuela have led Ford to essentially write off its investments in the country -- the $800 million charge reflects the change in the way Ford accounts for its Venezuelan operation.

But Venezuela isn't the only challenge. Economic slowdowns and rising inflation in Brazil and Argentina have hurt Ford (and its regional competitors). The good news is that new products, such as Ford's new Brazilian-made Ka minicar, helped Ford offset those challenges.

Ford Expects Things to Start Looking Up Soon

The good news is that Ford expects all of this work to set it up well for a big rebound in 2015. "Very strong growth and financial performance are expected in 2015," CEO Mark Fields said on Thursday, as he delivered Ford's guidance: a full-year pre-tax profit between $8.5 billion and $9.5 billion, with higher profit margins in North America, "substantial" improvements in South America, an improvement in money-losing Europe, and higher profits in its Asia-Pacific region, which includes its huge investments in China.

And Ford starts the year in good financial shape, despite the subdued results in 2014. It had $32.4 billion in cash and available credit lines as of the end of the year, a more-than-ample reserve for rainy economic days to come. On the other side of the ledger, its total debt of $13.8 billion was $1.9 billion less than a year ago.

That all provides the context for Ford's subdued 2014 results. Yes, profits were down substantially -- but much of the decline was due to Ford's investments for future growth, and that growth should start to appear as 2015 unfolds.

Motley Fool contributor John Rosevear owns shares of Ford. The Motley Fool recommends and owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. Find out the easy way for investors to ride the new mega-trend in the automotive industry inour free report.