Justin Sullivan, Getty Images
A row of Ford F-Series pickups on a lot.

Ford’s F-Series Riches Provide Leverage for Turnaround Bid

Oct. 26, 2017
Sales of F-Series pickups surged 14% for the truck line’s best third quarter in a dozen years. Ford said annual earnings will be at the high end of the range it forecast earlier this year.

Ford Motor Co. just boosted earnings the old-fashioned way — through strong sales of lucrative pickups and cost cuts.

Adjusted profit jumped to 43 cents a share for the three months ended in September, exceeding the highest analyst estimate in a Bloomberg survey. Sales of F-Series pickups surged 14% for the truck line’s best third quarter in a dozen years. Ford said annual earnings will be at the high end of the range it forecast earlier this year.

CEO Jim Hackett is now trying to leverage money makers like the F-Series to accelerate investments in models that don’t offer an immediate payback — self-driving cars and electric vehicles. Investors remained skeptical even after Hackett laid out a plan this month to improve the company’s “fitness” by slashing expenses by $14 billion while pushing into new forms of mobility to take on the likes of Alphabet Inc.’s driverless car unit Waymo.

“As great as the F-Series is, you can’t run the whole company on it,” David Whiston, an auto analyst with Morningstar Inc. in Chicago, said in an interview Wednesday. “The market was clearly expecting more from investor day and they didn’t get it. And they’re still waiting.”

Demand for Ford’s bread-and-butter models helped lift net income to about $1.6 billion, up from $957 million a year ago, when the company was spending to launch an aluminum-bodied version of its biggest pickups. Adjusted profit this year will be in the range of $1.75 to $1.85 per share, the company said, boosting the low end of its forecast.

“F-Series always plays an important role for the company — that’s one of our precious franchises,” Bob Shanks, Ford’s chief financial officer, told reporters Thursday at the company’s headquarters in Dearborn, Michigan.

Ford shares rose 2% to $12.28 as of 7:15 a.m. in New York, before the start of regular trading. The stock had dropped 2.4% through Wednesday’s close since Hackett’s Oct. 3 manifesto.

The sagging share price stands in stark contrast to General Motors Co., whose stock closed at a record Tuesday after reporting earnings. Investors are embracing GM’s plan for electric and autonomous cars while appreciating the tidy profits sport utility vehicles like the Equinox are hauling in.

“Ford is definitely behind in electric vehicles and flexible mobility,” said David Kudla, CEO of Mainstay Capital Management LLC, whose funds own both GM and Ford shares. “Not only is GM articulating a strategy in all of these areas, they are putting the pieces in place. With Ford, we’re still waiting to see the pieces.”

The second-largest U.S. automaker is trying to change the perception that it lags behind GM. Joe Hinrichs, Ford’s president of global operations, said the company is confident in its technology and strategy relative to competitors. “We need to do a better job of telling that story,” he said in an interview this week in Detroit.

In the meantime, Hackett is focusing on cutting costs, promising to pare $10 billion in material spending and $4 billion on engineering outlays over the next five years.

“This is a first down payment from strong cost management,” Shanks said of third quarter results.

Cars Struggle

Ford is reducing production at several North American factories through the end of the year as it works to keep inventories from swelling as the U.S. auto market declines for the first time in eight years. The automaker has scheduled shutdown weeks at plants building models including the Mustang sports car and the Focus compact.

Sales of Ford’s passenger cars have fallen 17% this year, dropping the company’s total market share in its home market to 14.9%, from 15.1% last year. Toyota Motor Corp. outsold Ford in the U.S. each of the last three months.

Also weighing on the stock is Hackett’s decision to pull back on a promise made by his predecessor, Mark Fields, that Ford’s profits will rebound in 2018. Hackett said this month he’ll provide guidance on 2018 earnings in January, leading to speculation they will decline as the automaker spends on new technology.

“It’s likely you’ll have to wait quite a while to get any meaningful upside to the stock,” Whiston said. “There is really not a lot of major new product coming until 2019. Between that and the confusion on strategy, it’s hard to get really excited about the stock right now.”

By Keith Naughton, with assistance from Jeff Green and David Welch

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Licensed content from Bloomberg, copyright 2016.

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