Ford Motor Company (F -0.41%) is set to report its fourth-quarter and full-year 2017 earnings after the bell this Wednesday, Jan. 24. What should we expect?
Well, for better or worse, there isn't a lot of suspense this time around. In a presentation to Wall Street analysts last week, Ford essentially told us what to expect -- and it wasn't quite what Ford's long-suffering shareholders hoped to hear.
Ford's F-Series pickups are probably its most profitable products, and most are sold in the United States. U.S. sales of the F-Series rose 9.3% in 2017. Image source: Ford Motor Company.
What Ford told us about its 2017 performance
To be clear, Ford didn't spell out its fourth-quarter results in last week's presentation. What it shared was its preliminary full-year 2017 results. But since we know what Ford earned through the first three quarters of 2017 and in the fourth quarter of 2016, we can apply a little math to get a good idea of how it performed in the fourth quarter of 2017.
| Metric | 2017 (Preliminary) | 1st 3 Quarters of 2017 (Actual) | Q4 2017 (Estimated) | Q4 2016 (Actual) | Change |
|---|---|---|---|---|---|
| Revenue | $156.8B | $115.5B | $41.3B | $38.7B | 6.7% |
| Adjusted pre-tax profit, automotive segment | $7.3B | $5.82B | $1.48B | $2.04B | (27.7%) |
| Adjusted pre-tax profit, financial services segment | $2.2B | $1.65B | $547M | $384M | 42.4% |
| Adjusted pre-tax profit (loss), other | ($1.1B) | ($777M) | ($323M) | ($294M) | $29 million worse |
| Total adjusted pre-tax profit | $8.4B | $6.7B | $1.7B | $2.13B | (20.2%) |
| Adjusted EPS | $1.78 | $1.39 | $0.39 | $0.30 | 30% |
| EPS (GAAP) | $1.95 | $1.30 | $0.65 | ($0.20) | $0.85 better |
| Automotive operating cash flow | $3.9B | $1.6B | $2.3B | $1.5B | 53.3% |
Data source: Ford Motor Company. Q4 2017 results were calculated by the author from Ford's preliminary full-year 2017 results. EPS = earnings per share.
The first big takeaway is that Ford's total adjusted pre-tax profit fell significantly year over year, to $8.4 billion from $10.4 billion in 2016. But its adjusted earnings per share rose slightly, to $1.78 from $1.76 a year ago.
Among other things, that tells us that Ford probably paid a lot less in taxes in 2017 than it did in 2016. Ford's effective tax rate in 2016 was 31.9%; its rate for 2017 was probably around 15%, thanks to its timely use of some tax credits earlier in the year.
What do Ford's fourth-quarter results tell us?
Obviously, we don't yet have the full story of how Ford performed in the fourth quarter of 2017. But the numbers we were able to calculate from its preliminary 2017 results suggest a few things:
- Revenue was up, but automotive profit was down significantly. We know that Ford's pricing has been under pressure in China, but that drop suggests that Ford's incentives in the U.S. are now hitting its margins as well.
- Ford Credit, the company's captive-financing arm, is performing well at the moment.
- There's some good news, in that it appears that Ford won't have a repeat of the big one-time item it reported in the fourth quarter of 2016. That was a $3 billion accounting charge related to an annual remeasurement of the value of its pension obligations that drove it to a net loss for the quarter.
The upshot: Expect a subdued report on Wednesday
I should note that Ford's full-year result fell short of the consensus Wall Street estimate of $1.83 as reported by Thomson Reuters. But at this point, the cat is out of the proverbial bag: Expect Ford's result to be in line with what we've estimated here -- and unless there are some surprises hidden behind these numbers, we can expect the market to take Ford's result in stride.
