Shares of Ford Motor Company (NYSE:F) dropped sharply on Monday, as the effects of a broad-based market sell-off were amplified by investors' concerns about the company's struggling operations.
Ford's shares finished at $7.63 on Monday, down 5.2% from Friday's close.
This is new territory: Ford stock hasn't closed this low since November 2009.
Ford is in a much better situation now than in those dark days, when bankruptcy was still a possibility. But there are legitimate reasons for investors to be concerned right now:
- Ford's sales in China are down 34% this year through November, as Chinese buyers have turned away from what they see as outdated Ford models.
- Ford is doing somewhat better in Europe, but the company has said that it will need to significantly overhaul that operation in order to return it to sustainable profitability.
- General Motors said last month that it will cut over 14,000 workers and close seven North American factories in an attempt to stay ahead of a worsening U.S. economy. Investors are increasingly worried that Ford will have to do something similar.
Ford CEO Jim Hackett has pushed to improve Ford's "fitness," a term he uses to mean both the company's profitability and its ability to respond quickly to market changes. Ford is revamping its product portfolio to reduce costs and time to market while improving profitability -- a project that will include, among other things, the elimination of all sedan models from its U.S. lineup.
But the company has said frankly that meaningful bottom-line improvements probably won't begin to happen until 2020. Until then, there's a real worry: Will Ford have to cut its dividend, currently yielding a hefty 7.3%?
CFO Bob Shanks has argued, persuasively, that Ford will be able to maintain its regular quarterly dividend through a recession -- and that it is determined to do so, to prove to investors that it can.
If Ford can manage to get through whatever economic storms lie ahead without cutting its dividend, the stock is arguably a screaming buy at current prices. But plenty of investors are skeptical -- hence today's sell-off.