Ford to Take $800 Million Pretax Charge on Venezuela Operations -- Update

By Mike Ramsey 

Ford Motor Co. is removing its Venezuelan operation from its consolidated financial reports, taking an $800 million pretax charge in the fourth quarter amid unstable economic conditions and additional currency devaluation.

The charge is the second related to Venezuela for last year, bringing the total impact above $1 billion in 2014. The fourth-quarter hit is so large that it could lead Ford to post its first net loss since 2009.

The move comes during a tough period for Venezuela's auto industry. Several top auto makers, including General Motors Co. and Toyota Motor Corp., have cut output in the South American country significantly because of a lack of dollars to pay parts suppliers. Other industries, including newspapers, bottlers and food processors, have been hit hard by currency controls preventing companies from taking dollars out of Venezuela.

The collapse in the price of oil, the country's main export, has worsened an already-tough economic situation in Venezuela. Weakness in Venezuela is another blow to Ford following a year of setbacks. Earlier this year, the auto maker was forced to lower earnings guidance because of recall costs, softness in South America and weaker-than-expected performance in Europe.

Venezuelan auto sales are modest, but the U.S. auto maker operates a large factory in Valencia producing Fiesta small cars and Explorer SUVs. Ford's charge will lower its 2014 fourth-quarter net income results by $700 million, the company said, and it follows a $350 million charge Ford took in April due to the devaluation of the currency.

On Thursday, Venezuela President Nicolás Maduro opened the possibility of cutting a gasoline subsidy in the country and devaluing the currency once again, likely prompting Ford's disclosure that it is removing Venezuela from its consolidated financial reporting.

Citi analyst Itay Michaeli said "our initial take on this news is that it's a modest positive. The switch to the cost method of accounting is essentially an accounting 'divorce' that deconsolidates Venezuela results and therefore eliminates the (foreign-exchange) volatility that plagued Ford's 2014 results."

Mr. Michaeli said GM could consider the move as well. A GM spokesman said the company has no comment on the specific issue of pulling Venezuelan results from consolidated earnings.

Ford is scheduled to report its quarterly earnings Thursday. Before Friday's disclosure, analysts polled by Thomas Reuters had forecast adjusted earnings of 23 cents a share, compared with 31 cents a share profit a year earlier.

In addition to regional economic weakness, lower production of its F-150 pickup because of a production changeover to an aluminum-body construction will likely weigh on earnings. Ford said it continues to expect its full-year 2014 pretax profit, excluding special items, to be $6 billion, lower than 2013's results.

Write to Mike Ramsey at [e-mail]

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