Ford plant closures will aid overseas profitability

12 January 2021 - 15:48 By Reuters
J.P. Morgan analysts said on Tuesday that Ford Motor Co's decision to close three plants in Brazil will cut its losses and allow it to focus on boosting profitability in its underperforming international segment.
J.P. Morgan analysts said on Tuesday that Ford Motor Co's decision to close three plants in Brazil will cut its losses and allow it to focus on boosting profitability in its underperforming international segment.
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Ford Motor Co’s decision to close three plants in Brazil will cut its losses and allow it to focus on boosting profitability in its underperforming international segment, J.P. Morgan analysts said on Tuesday.

The No 2 automaker in the US on Monday said it would take pretax charges of about $4.1bn (roughly R63,207,650,000) to close the Brazilian plants, under used for a while due to pandemic-related restrictions and affecting 5,000 jobs.

Shares of the company gained 3% following the announcement on Monday afternoon and were roughly steady in premarket trading on Tuesday at $9.31 (roughly R143.51).

Ford said the move was part of a previously announced $11bn (roughly R169,581,500,000) global restructuring, of which it has already taken a charge of $4.2bn (roughly R64,735,020,000) in the third quarter of 2020. It expects to book another $2.5bn(roughly R38,532,750,000) in the fourth quarter and about $1.6bn (roughly R24,660,960,000) in 2021.

J.P. Morgan analyst Ryan Brinkman said the move came at a time when investors had been complaining of the absence of a path to profitability for the South American businesses.

"We expect the move to quickly reduce losses in its South American operations, for which we now model a breakeven result in 2020 compared with a loss of $300m(roughly R4,626,630,000) prior."

The brokerage raised its price target for Ford's stock by 10% to $11 (roughly R169.56).

Credit Suisse analysts also said the plant closures supported Ford's road to improved margins and that a reduced footprint made sense.


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