Ford Motor Company (F -0.39%) prepared investors and analysts for weaker results when it released preliminary 2018 full-year earnings figures that didn't live up to Wall Street estimates. When Ford's conference call wrapped up, the company had reported fourth-quarter earnings of $0.30 per share, excluding one-time items, and $1.30 per share for the full-year 2018 -- both down from 2017 results.
Amid the lackluster earnings, there were some surprising figures that came out of the automaker's fourth quarter that investors need to see:
1. The pain in China is real
You can't miss the enormous black eye from Ford's results in China. They were horrible from top to bottom: The Asia-Pacific region, which is largely driven by China results, posted a 12% drop in full-year revenue and a 33% decline in wholesale volume.
Ford's wholesale numbers in China alone dropped 42% for the full year and a steeper 57% during the fourth quarter. Ford's market share in China dropped 130 basis points, from 4.2% down to 2.9%, as its older vehicle portfolio failed to lure in consumers throughout 2018.
And consider what that volume drop did to Ford's bottom line. A pre-tax loss of $19 million during the fourth quarter of 2017 was bad enough, as the region is supposed to become a second pillar of revenue and profits for the automaker, but earnings took a nosedive during the fourth quarter of 2018 as well. Ford's pre-tax result in China tumbled to a brutal $534 million loss. That dragged down the broader Asia-Pacific region to a $381 million loss during the fourth quarter. If you take China out of the equation, the rest of Asia-Pacific was up $153 million.
Ford is debuting a slew of new vehicles in China, such as this Territory SUV, to help boost sales in 2019. Image source: Ford Motor Company.
Still looking for something more startling in Ford's China results? Let's zoom out to the full year: Ford's 2018 losses in China totaled $1.54 billion. To help put that in context, Ford lost a total of $2.18 billion between South America, Europe, Middle East & Africa and Asia-Pacific -- in other words, China accounted for 70% of Ford's automotive losses last year.
2. Ford's overlooked earnings machine
By now Ford investors understand that North America keeps the lights on in Dearborn, so we can't ignore North America's $1.96 billion pre-tax profit during the fourth quarter. North America's strong results offset overseas woes and was a $188 million improvement from the prior year. But an amazing aspect of Ford's fourth quarter came from its often-overlooked Ford Credit.
The financial services arm of the Dearborn automaker has been an earnings machine in recent years. During the fourth quarter, Ford Credit generated $663 million in pre-tax earnings. To help put those earnings in perspective, Ford posted a $195 million loss on mobility and $295 million interest on debt. Ford Credit's $663 million pre-tax result almost offset the $828 million the automaker lost during the fourth quarter in South America, Europe, Middle East & Africa, and Asia Pacific combined. It was a strong result that capped off Ford Credit's full-year 2018 pre-tax profit of $2.6 billion -- its best result in eight years.
Here's why a thriving Ford Credit is better for investors than they might realize. Ford had previously been reinvesting the cash generated from Ford Credit back into its lending business to help it expand. But with the North American market plateauing, management is satisfied with the size of Ford Credit and will now send that cash back to Ford.
In other words, management anticipates that the cash sent from Ford Credit back to Ford can support roughly 70% of its dividend on its own. That cash is extremely reassuring for investors concerned about the company's ability to maintain its dividend, currently sitting at a 7.2% yield.
3. A surprising omission
Another startling aspect of the fourth quarter was the lack of specific numbers. On Jan. 16, Ford announced preliminary results that disappointed analysts and investors alike, but what pressured the stock even further was a lack of 2019 guidance -- an unusual and bothersome development.
Ford is in a tough spot currently with all the uncertainty swirling in its business. It's possible, even likely, that whatever guidance it could provide right now would be meaningless in a matter of a few months. Not only is Ford dealing with volatile U.S.-China trade tensions, it has also been a leading U.K. brand for a long time. So depending on what happens with Brexit, it can affect Ford immensely.
However, Ford's lack of guidance comes at a bad time considering its crosstown rival General Motors -- which has exited its European operations, and isn't concerned about Brexit -- said it exceeded 2018 guidance and expects to do even better in 2019.
While it's understandable that Ford can't give meaningful guidance with so many crucial factors such as trade tensions and Brexit hanging in the balance, it's still a bad sign for investors hoping to see a clear path toward a rebound in business.
Ford's fourth quarter was eye-popping in many ways. It posted incredible North America and Ford Credit results, but its staggering losses overseas are definitely weighing on its overall results. Ford's business is hit-or-miss, depending on the region, so it can't even give relevant guidance at the moment. Long-term investors looking for a turnaround should buckle up because the short term could remain bumpy.
Check out the latest Ford earnings call transcript.
