Employees at a Ford assembly plant in Chicago. The auto maker’s revenue for the full year fell 3% to $155.9 billion. PHOTO: DANIEL ACKER/BLOOMBERG NEWS

Finance

Ford’s Operating Income Falls by Two-Thirds

par Featured articles licensed from The Wall Street Journal | le 7 February 2020


 

 

 

Auto maker cites lower production volumes in North America

By

Mike Colias – The Wall Street Journal

Ford Motor Co. F -0.72% said fourth-quarter operating income sank by two-thirds, and it issued a lower-than-expected profit outlook for 2020, the latest signs of trouble for Chief Executive Jim Hackett’s turnaround plan.

Ford said operating income for the October-to-December period was $485 million, down from $1.5 billion a year earlier. Earnings per share adjusted for one-time items were 12 cents, well short of analysts’ estimate of 17 cents a share.

The company’s financial standing has continued to weaken under Mr. Hackett, who was brought in nearly three years ago to revive the auto maker’s profit growth and give it a stronger vision for the future.

Ford’s net income for the full year fell to just $47 million—down from $3.68 billion in net income a year earlier—mostly due to restructuring costs in Europe and adjustments to global pension plans.

Revenue for the full year dropped 3% to $155.9 billion.

Ford shares slid around 10% in after-hours trading. They are flat for the year, closing at $9.17, and down about 17% since Mr. Hackett took over as CEO in May 2017.

“Financially, it wasn’t OK,” finance chief Tim Stone said of the 2019 results during a discussion with reporters at Ford’s headquarters. “Strategically…I think we made strong progress.”

Ford pinned the shortfall in part on lower production volumes in North America stemming from problems with launches of key models, including the redesigned Explorer and Escape sport-utility vehicles and its Super Duty pickup truck. It also cited higher warranty costs and a bonus payout to United Auto Workers that totaled about $600 million.

Ford booked a net loss of $1.67 billion for the quarter which it attributed to higher contributions to its pension plans overseas. Revenue fell 5%, to $39.7 billion.

The auto maker forecast operating profit this year of $5.6 billion to $6.6 billion, compared with $6.38 billion last year. That equals an earnings-per-share range of 94 cents to $1.20, which is lower than the average analysts’ estimate of $1.30, according to S&P Global Market Intelligence.

Mr. Hackett’s strategy to revitalize Ford—which includes a multiyear, multibillion-dollar restructuring—hasn’t returned the company to earnings growth or restored profitability overseas, where Ford is closing plants and shedding thousands of workers to cut costs. Ford’s operating profit has fallen in both full years of his tenure.

This year “will be crucial for Ford, as it must show better results” from Mr. Hackett’s revitalization plan, Credit Suisse analyst Dan Levy wrote in an investor note Tuesday. “Ford must start meeting/exceeding investor expectations to reinvigorate investor interest.”

Ford executives said the company continues to restructure the business to reduce costs and focus on more profitable parts of the business. But they acknowledged disappointment in its implementation of production schedules.

“Financially, the company’s 2019 performance was short of our original expectations, mostly because our operational execution—which we usually do very well—wasn’t nearly good enough,” Mr. Hackett said. “We recognize, take accountability for and have made changes because of this.”

Ford CEO Jim Hackett at an event in California in November. PHOTO: PATRICK T. FALLON/BLOOMBERG NEWS

A year ago, Mr. Hackett was frank about his disappointment with results from 2018, telling staffers in a memo that he was angry about the mediocre results and advised employees to “bury the year in a deep grave” and focus on 2019, The Wall Street Journal reported.

Under Mr. Hackett, Ford has pursued futuristic initiatives, such as testing driverless pizza delivery and an all-electric SUV version of the Mustang muscle car. But it has also been consumed by present-day problems that have weighed on earnings.

The second half of Ford’s year was plagued by higher warranty costs and a troubled rollout of a redesigned version of its Explorer sport-utility vehicle, one of its key models. Ford executives have said the rollout plan for the SUV, built at its renovated Chicago assembly plant, was overly aggressive and delayed the launch last fall.

In China, where car companies have been hurt by the first sales decline in decades, Ford has struggled more than most. Its sales there have fallen by more than half since 2016. Company executives have said Ford didn’t update its vehicle lineup quickly enough to keep pace with Chinese tastes.

In a bright spot for the year, Ford trimmed its losses in overseas markets. It halved its China loss, to $771 million, from $1.55 billion, which it attributed to cost cutting. In Europe, the company had a $47 million loss for the year, down from a $398 million loss a year earlier.

The troubles abroad have left Ford to lean heavily on profit in two areas: the strength of its F-series line of pickup trucks in North America and income from its lending arm, Ford Motor Credit, which accounted for nearly half of Ford’s operating profit in 2019. That has risen steadily from about 20% in 2013.

Investors want to see Ford return other parts of its business to profitability while its North American business remains healthy, Credit Suisse’s Mr. Levy wrote.