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Ford plant closures to aid overseas profitability: J.P. Morgan

Ford plant closures to aid overseas profitability: J.P. Morgan

FILE PHOTO: Ford logo is pictured at the 2019 Frankfurt Motor Show (IAA) in Frankfurt, Germany. REUTERS/Wolfgang Rattay/File Photo

REUTERS: 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 United States' No. 2 automaker on Monday said it would take pretax charges of about US$4.1 billion to close the Brazilian plants, under used for a while due to pandemic-related restrictions, affecting 5,000 jobs.

Shares of the company gained 3per cent following the announcement on Monday afternoon and were roughly steady in premarket trading on Tuesday at US$9.31.

Ford said the move was part of a previously announced US$11 billion global restructuring, of which it has already taken a charge of US$4.2 billion in the third quarter of 2020. It expects to book another US$2.5 billion in the fourth quarter and about US$1.6 billion in 2021.

J.P. Morgan analyst Ryan Brinkman said in a note 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 US$300 million prior."

The brokerage raised its price target for Ford's stock by 10per cent to US$11.

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

(Reporting by Aniruddha Ghosh in Bengaluru; Editing by Shinjini Ganguli)

Source: Reuters

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