Ford drops after quarterly beat attributed to tax credits

Shares of car giant Ford (F) are sharply lower despite an earnings beat announced earlier. EARNINGS ASTERISK: Before the market open on Wednesday, Ford reported second quarter adjusted earnings per share of 56c on revenue of $39.9B. Analysts' estimates for the quarter were 43c for EPS on revenue of $37.1B. The big asterisk for Q2 results was the much lower tax rate in the quarter of 10.2% compared to the 32% rate it paid last year. Under new CEO Jim Hackett, who was hired in May to replace Mark Fields, the company recorded a $248M pre-tax charge that was related to write-offs that the automaker took in association with the decision to shift production of the Ford Focus to China from Mexico. The car maker will begin importing the compact Focus from China in 2019. Additionally, Ford noted on its earnings conference call that it took $421M from overseas distributions which come with foreign tax credits that Ford realized on its balance sheet. As a result, the company sees an adjusted effective tax rate of about 15% for the full year, much lower than was expected, The lower tax view allowed the car company to provide fiscal year 2017 EPS guidance of $1.65-$1.85 against analysts' consensus of $1.51. Ford also forecast fiscal year automotive segment operating margin lower than last year and automotive segment operating cash flow positive but lower than FY16. PRE-TAX PROFITS: A better indication of Ford's financial health is seen in its pre-tax profit of $2.51B, down 16% from the $2.8B the company reported in the year ago period. The company attributes the decline in pre-tax profitability to material costs, mostly from steel. NORTH AMERICA VOLUMES LOWER: Ford said wholesale volumes in North America were down 1% in Q2. Revenue gains were driven by continued strength of series and vehicle mix and higher net pricing. Fleet sales were lower for the quarter and the company said it sees continues erosion in North American margins and profit as commodity costs continue to pinch the bottom line. PRICE ACTION: Ford shares are off their earlier low of $10.93, but are still down 2%.1 to $11.03 in afternoon trading.