Lower tax rate fuels Ford beat, seen boosting 2017 net profit

By Nick Carey and Paul Lienert

DETROIT (Reuters) - Ford Motor Co on Wednesday reported a better-than-expected quarterly net profit due to a lower tax rate and increased U.S. sales of more-profitable pickup trucks, but forecast a slightly lower 2017 pre-tax profit, sending its shares down 2.3 percent.

Against a backdrop of declining sales for the U.S. auto industry, Ford leaned heavily on consumer discounts during the quarter and the value of its unsold vehicles rose. Ford warned its full-year automotive operating margin and cash flow would be lower than in 2016.

The No. 2 U.S. automaker said, however, a reduced tax rate would boost its full-year net profit. The results are the first for Chief Executive Jim Hackett since Ford ousted his predecessor in late May and elected him to the top spot.

Hackett has promised a broad-reaching review of Ford's operations within his first 100 days.

Analysts are concerned about the high discounts that Ford and other automakers are relying on to sell cars and high supplies of unsold vehicles.

Ford's global sales were down 43,000 vehicles in the quarter, with 8,000 of that coming in the U.S. market. Ford said its full-year margin in North America would be lower than in 2016 due to rising commodity costs and engineering expenses.

Rival General Motors Co on Tuesday reported a better-than-expected quarterly profit, helped by cost-cutting, and promised to scale back production to cut its burgeoning inventories.

Ford said it now expect full-year adjusted earnings per share in a range from $1.65 to $1.85, above the $1.51 expected by Wall Street, according to Thomson Reuters I/B/E/S.

But Chief Financial Officer Bob Shanks said this would be largely due to a 2017 tax rate of 15 percent as Ford pulls forward deferred tax losses from outside the United States and could be affected by U.S. market conditions. Wall Street had expected an effective tax rate of 30 percent for 2017.

Shanks said Ford's pre-tax profit would be slightly lower than the $9 billion Ford has previously forecast, after a record of $10.4 billion in 2016.

In a research note for clients, Buckingham Research Group analyst Joseph Amaturo wrote that stripping out the impact of the lower tax rate, the midpoint of Ford's full-year earnings outlook is below analyst expectations.

"We recommend investors remain on the sidelines given our concerns for lower U.S. industry volumes... and continued pricing pressure we expect for the back half of the year, which likely puts profitability under pressure," he wrote.

Ford shares were down 25 cents or 2.3 percent at $11.02.

Ford's CFO said the company has canceled plans to build the next generation of its compact Focus model in South America. For the North American market, Ford announced last month that it would move production of the Focus to China from Mexico.

The company reported second-quarter net income of $2.04 billion, or 51 cents per share, up from just under $2 billion, or 49 cents per share, a year earlier. Excluding one-time items, the No. 2 U.S. automaker reported earnings per share of 56 cents, and on that basis analysts, on average, looked for 43 cents.

Revenue for the quarter rose to $39.9 billion from $39.5 billion.

(Reporting by Nick Carey; Editing by Jeffrey Benkoe and Nick Zieminski)