Ford Motor Q3 Net, EPS, EBIT – All Down as Ford Stumbles

Ford Motor Company Q3 2018 financial results were value destroying for shareholders. Total return for 2018 is off -19%.  For five years it dropped -29%. Company Q3 revenue was up 3% year over year, but with net income, company adjusted EBIT, and earning per share all down year over year, operational losses and blatant weaknesses were on full display.

Once again top Ford executives claimed they had a multi-year plan to fix things, but the same pledge has been made since Ford 2000. Ford also said that because of the higher costs and uncertainty impacting the entire sector, coupled with unexpected deterioration this year in the Europe, Middle East and Africa, and China businesses, current company forecasts show that it will not reach its previously announced 8% EBIT margin or high teens ROIC targets by 2020. Another job-destroying reorganization in process.

Ford admits that adjusted EPS guidance for the full-year in the range of $1.30 to $1.50 and positive cash flow that will be lower than 2017. Ford also said that because of the higher costs and uncertainty impacting the entire sector, coupled with unexpected deterioration this year in the Europe and China business, current company forecasts show that it will not reach its previously announced 8% EBIT margin or high teens ROIC targets by 2020.

In a solid North American market, Ford delivered an 8.8% EBIT margin, supported by more than $1 billion of improved mix, due to the continued shift towards utilities and trucks, as well as high-end trim models. The problem remans that big trucks are not saleable globally so there is no way to hedge this gas-guzzling bet.

“This quarter shows that our business remains very strong in key areas. We continue to make progress on our efforts to redesign Ford to be far more competitively fit, disciplined in capital allocations and nimble enough to win in a fast-changing world,” claimed Jim Hackett, Ford president and CEO. Hackett’s future at Ford is subject to much media speculation in Detroit circles.

Company adjusted EBIT was driven by the North America business, with nearly $2 billion of EBIT, an improvement of $136 million year over year, despite lower volume and higher commodity costs, supported by a modest share increase for the F-Series, record transaction pricing for Super Duty and higher sales of SUVs.

In the U.S., Ford trucks and SUV sales totaled 482,512 vehicles, representing a 2.8% gain over the third quarter of 2017. F-Series average transaction prices increased by $858 per truck compared to a year ago, totaling $46,224. (Ford Motor US Sales Reverse in September. Job Cuts Coming)

Ford Credit also had a strong quarter, generating an EBT of $678 million, from favorable volume and mix (translation N.A. trucks – we have seen ho this movie ends before when gas prices and interest rates rise), as well as favorable lease residuals. The company saw auction values rise 5% from prior year at constant mix and now expects auction values to increase on average 3% at constant mix for the full year, which is a side-effect of continually escalating prices. Ford’s nascent mobility business lost almost $200 million.

“This quarter we achieved a North America EBIT margin of nearly 9% and the best quarterly result in Ford Credit in more than seven years, while teams across the company continue to aggressively improve the operational fitness of the business,” said Bob Shanks, executive vice president and CFO. “Our balance sheet remains robust, with more than $23 billion of cash and more than $34 billion of liquidity. The company remains on track to achieve full-year adjusted EPS of $1.30 to $1.50,” said Bob Shanks, executive vice president and CFO. Ford Motor Company’s October U.S. sales totaled 192,616 vehicles, representing a -3.9% decline

Outside of North America things were grim. The Dearborn-based company had a $558 million EBIT loss, slightly improved from the second quarter, despite lower volume. In all regions, teams continue to work to improve the operational fitness of the business, while building on alleged core company strengths.

In Europe, the share for commercial vehicles improved to 15.4%, a record quarter, as the region continues to build on its commercial vehicle success. Yet Europe lost money

In Asia Pacific, there have been record year-to-date sales of the Ranger and in China, but it lost money. There was a decline in EBIT due to lower volume and net pricing in China JVs and unfavorable market factors in China for Explorer and Lincoln imports. (Ford Motor Creates Stand-Alone China Business to Stop Loses in Its Latest Asia Pacific Shakeup)

Lincoln achieved a record third quarter sales performance, with sales up 5% year over year, including Navigator up 67% year over year but this is a local market phenomenon not a global strength. (see above)