Ford Otosan's Third-Quarter Profit Drops 17% to $80.4 Million, Beats Estimates

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Researched by Industrial Info Resources (Sugar Land, Texas)--Turkey's largest automotive firm, Ford Otosan (Kocaeli, Turkey), the Turkish unit of Ford Motor Company (NYSE:F) (Dearborn, Michigan) that is in partnership with Koc Holding AS (Istanbul, Turkey), announced $80.4 million net income for July-September 2012, down 17% from the same period last year. The market consensus for income was $67.6 million.

Ford Otosan's margin for earnings before interest, taxes, depreciation and amortization (EBITDA) contracted 90 basis points quarter-to-quarter to 6.9%, which was lower than 8.1% consensus expectations. Ford Otosan's domestic sales and exports declined 8% and 24% year-over-year, respectively.

"The main reason behind the quarterly contraction in margins is increasing operating expenses/sales ratio as a result of the decline in sales volumes," said Vedat Mizrahi, an analyst at Deutsche Bank in Istanbul. "We expect margins to recover slightly in the fourth quarter on the back of lower raw material prices."

This year has been highly competitive in the domestic market, and pricing pressure coupled with Ford Otosan's ongoing large-scale investments has led to lower margins for this year. Ford Otosan plans to spend $440 million in 2012, $345.2 million of which has been spent in the first nine months of the year. "Ford Otosan's investment case could improve toward the end of the high-capital expenditure cycle in the second half of next year," said Mete Ozbek, an analyst at Renaissance Capital in Istanbul.

In late October, Ford Motor Company revealed its plans to consolidate its factories and cut its workforce in Europe, in a bid to achieve profitability in the struggling region. According to plans, the company will close three factories and lay off 6,200 employees, or 13% of Ford's European workforce.

The company said the manufacturing of Transit will be consolidated in its principal commercial vehicle manufacturing facility, operated by Ford Otosan in Kocaeli, Turkey, in 2013. For additional information, see October 29, 2012, article - U.S. Automaker Ford Consolidates Businesses in Europe, Closes Three Plants.

Last September, Ford said it would introduce 15 global vehicles in Europe within five years, and would expand in the growing European SUV segment. It also said it would redesign and expand its commercial vehicle range over the next two years.

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