Ford logo in their auto plant

Ford plant closures to aid overseas profitability, says J.P. Morgan

Ford Motor’s decision to shut three plants in Brazil will reduce its losses and allow it to focus on increasing profitability in its underperforming international segment, J.P. Morgan analysts said on Tuesday.

The automaker on Monday said it would take pretax charges of about $4.1 billion to close the Brazilian plants, under used for a while due to coronavirus crisis, affecting 5,000 jobs.

Ford said the move was part of a previously declared $11 billion global restructuring, of which it has already taken a charge of $4.2 billion in the third quarter of the last year. It expects to book another $2.5 billion in the fourth quarter and about $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 about lack of chances for profitability in 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 $300 million prior.”

The brokerage raised its price target for the automaker’s stock by 10% to $11.

Credit Suisse analysts also said the plant shutdowns supported Ford’s road to improved margins and that a decreased footprint made sense.

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