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Ford Tops Estimates as Turnaround Gains Traction

April 26, 2019
Performance improvements are starting to accumulate, said CFO Tim Shanks. “It’s like a rolling stone.”

Ford Motor Co. is fighting its way back from the single-digit stock doldrums, as strong demand for lucrative F-Series pickups and early fruits of massive cost cuts improve the automaker’s earnings outlook.

Adjusted profit of 44 cents a share in the first quarter blew past analysts’ average estimate of 26 cents. Automotive revenue slipped to $37.2 billion on lower global deliveries to dealers, but still exceeded the average projection of $37 billion.

Chief Financial Officer Bob Shanks, who said in January there was “potential” for earnings improvement this year, told reporters Thursday he was more certain of that view. “We were hopeful that we would be improving,” he said at Ford headquarters in Dearborn, Michigan. “We have more confidence in that today.”

Ford shares surged as much as 10% to $10.35 after the close of regular trading, climbing back above the $10 mark for the first time since August. After a rout last year, the stock is up 23% in 2019.

The results reinforce the case Chief Executive Officer Jim Hackett made earlier this month that the company is turning the corner in the midst of the $11 billion overhaul he’s leading. The earnings beat was driven by strong results in Ford’s home market, where pretax profit margin rose nearly a point, to 8.7%, on demand for lucrative trucks and SUVs including the F-Series and Lincoln Navigator.

'Rolling Stone'

Hackett, 64, is trying to boost Ford’s bottom line by closing factories, cutting thousands of salaried jobs and ditching traditional sedans to focus on higher-profit sport utility vehicles and trucks. He’s also pouring billions into electric and self-driving cars and this week announced a $500 million investment in battery-powered truck-maker Rivian.

While investors have voiced frustration with the deliberate approach Ford management has taken to transforming the company, they’re growing more optimistic as the carmaker introduces new and redesigned models, including the Escape SUV.

Shanks, the CFO, said that once the changes that are part of Ford’s restructuring start to take hold, the performance improvement can accelerate very quickly. “It all starts to accumulate,” he said. “It’s like a rolling stone.”

What Bloomberg Intelligence Says

“Ford’s exit from unprofitable businesses -- mainly cars -- and cost cuts to focus on wider-margin commercial trucks overseas is proving the more effective strategy to get Europe and China to sustainable Ebit and North America to 10% pretax margin.” -- Kevin Tynan, auto analyst

Work still remains. Ford had pretax losses of $128 million in China, compared with a loss of $150 million a year ago. Ford’s sales in China plunged 36% in the first three months of the year as it struggled with an aging lineup and slowing market. Its nascent mobility business segment -- responsible for costly self-driving vehicle development -- lost $288 million.

Shanks also warned the first three months of the year may be Ford’s best quarter of 2019, as costs associated with launching the redesigned Explorer and Escape will eat into profits later in the year.

“Sentiment has improved, but there’s still some skepticism remaining,” said David Whiston, an analyst with Morningstar in Chicago, who rates Ford a buy. “The old, stale product lineup is getting close to being refreshed in the U.S. and recent disclosures of cuts in Europe and South America are appealing.”

New Faces

Hackett last month named a new leader for Ford’s international operations, promoting Mark Ovenden, the head of its business in the Middle East and Africa, to that broader role. Ford also hired a new CFO in Tim Stone, a former Amazon.com Inc. and Snap Inc. executive, to be the first outsider to fill that critical role at Ford in 70 years.

“The hiring of Tim Stone from Amazon as CFO signals to Wall Street that Ford is serious about its transition to a new-age company,” David Kudla, chief investment strategist for Mainstay Capital Management, wrote in an emailed note.

North America continued to drive Ford’s profit, with earnings before interest and taxes of $2.2 billion, up from $1.9 billion a year earlier. Ford’s U.S. sales fell 1.6% in the first quarter, a smaller decline than the drop at General Motors Co. and Fiat Chrysler Automobiles NV.

“It’s all about trucks,” Morningstar’s Whiston said of Ford’s top selling F-Series pickups, which continue to sell well even as GM and Fiat Chrysler have rolled out redesigned trucks. “That’s a testament to the strength of the F-Series franchise and bodes well for next year when you get a new generation truck.”

By Keith Naughton

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Licensed content from Bloomberg, copyright 2016.

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