Ford Motor (NYSE:F) reported second-quarter net income of $148 million, down sharply from $1.1 billion in the second quarter of 2018. As expected, one-time charges related to Ford's restructuring efforts in Europe and South America were responsible for much of the decline.

Excluding those one-time items, Ford earned $0.28 per share, up $0.01 from the year-ago period. Revenue from Ford's core automotive business was $35.76 billion, down from $35.9 billion a year ago. Wall Street analysts polled by Thomson Reuters had expected adjusted earnings per share and automotive revenue of $0.31 and $35.17 billion. 

Ford's share price fell sharply in after-hours trading after the news was released.

Ford's world headquarters building in Dearborn, Michigan, USA.

Image source: Ford Motor.

The raw numbers

Here are the key numbers from Ford's second-quarter 2019 results.

Metric Q2 2019 Change vs. Q2 2018
Revenue $38.9 billion 0%
Wholesale shipments (rounded to the nearest thousand) 1,364,000 (9%)
Adjusted EBIT $1.7 billion 0%
Automotive EBIT margin 3.8% 0.6 ppts higher
Net income $150 million (86%)
Adjusted earnings per share $0.28 $0.01 higher
Adjusted free cash flow $0.2 billion $2.0 billion higher

Data source: Ford Motor Company. "EBIT" is earnings before interest and tax. "Adjusted" figures exclude the effects of one-time items. Ford took $1.2 billion in one-time charges in the second quarter of 2019 and $42 million in one-time charges in the second quarter of 2018. "Automotive" figures include results from Ford's core automaking business; results from its financial-services unit are excluded. "Ppts" = percentage points. 

Ford's quarter in a nutshell

The good news is that Ford's ongoing global "redesign" effort is showing tangible signs of progress. Net pricing improved in all of Ford's regional business units, meaning that Ford is able to get more money for its vehicles, on average, than it could a year ago. In some cases, the difference was significant -- pricing improvements helped Ford Europe to a small profit versus a loss in the year-ago period.

That said, Ford had warned investors that this would be a year of big restructuring charges, and it wasn't kidding: Ford took $1.2 billion in restructuring charges in the second quarter, most related to its ongoing efforts in Europe and South America. About $200 million of that was cash; the remainder consisted of non-cash accounting charges, CFO Tim Stone said. 

How Ford's business units performed

Note that all financial results in this section are reported on an EBIT basis, except as noted. 

North America: Ford earned $1.7 billion in its core North America region, down $57 million from a year ago. Strong vehicle mix and pricing gains helped, but a 7% drop in wholesales -- much of it resulting from tight supplies of the Explorer SUV as its factory was shut down to transition to the all-new 2020 model -- hurt. 

Ford North America's EBIT margin was 7.1% in the second quarter, down from 7.4% a year ago. 

Europe: Ford Europe earned $53 million, a $126 million improvement from a year ago, as its ongoing "redesign" began to show results. Simply put, Ford kept its structural costs flat year over year while selling a more profitable mix of vehicles -- more Transit vans, fewer Fiestas. Wholesale shipments were up 3% from a year ago.

South America: Ford lost $205 million in South America in the second quarter, versus a loss of $178 million a  year ago. Ford has been fighting inflationary pressures, sluggish industrywide sales, and unfavorable exchange-rate movements in this region for several quarters. Strong pricing gains helped offset much of the inflation, but a weak new-vehicle market in Argentina kept the region in the red. 

China: Ford lost $155 million in China in the second quarter, versus a loss of $483 million a year ago. Nearly all metrics improved incrementally: Product mix (in particular, higher Lincoln sales), pricing, costs, and even exchange rates all helped boost Ford's results year over year. Ford still has work to do in China, but the progress is becoming visible. 

Middle East and Africa: Ford lost $45 million here, down from a $49 million profit a year ago. Good cost and pricing gains were more than offset by lower sales volumes and a decline in value of the South African rand versus the U.S. dollar. 

Asia Pacific: Ford's "rest of the world" unit earned $30 million in the second quarter, down from $89 million a year ago. Costs were down $82 million from a year ago, and pricing gains added $8 million -- but those gains were more than offset by adverse exchange-rate movements, in particular a decline in the value of the Australian dollar versus the U.S. dollar and other global currencies.

Ford Credit: Ford's captive-finance arm earned $831 million in pre-tax profit, a 29% increase from $645 million a year ago. Simply put, the leased vehicles in Ford Credit's portfolio are depreciating less than expected. Credit metrics were roughly flat from (good) year-ago levels. 

Debt and liquidity

Ford ended the second quarter with $23.2 billion in cash available to its automotive business, up slightly from the end of 2018. It has an additional $14.1 billion in available credit lines, for total automotive liquidity of $37.3 billion. That's up $3.1 billion from year-end, thanks to a new supplemental credit facility.

Against that cash reserve, Ford had $14.6 billion in well-structured long-term debt as of the end of the quarter, up by about $500 million from year-end. Ford issued $750 million in bonds in the quarter and used the proceeds to repay higher-interest debt. 

Ford confirmed that its global pension plans are currently fully funded. 

Looking ahead: Ford's guidance

Stone updated Ford's full-year guidance. The company now expects:

  • Adjusted earnings per share between $1.20 and $1.35. (2018 result: $1.30).
  • Adjusted EBIT between $7.0 and $7.5 billion. (2018: $7.0 billion).
  • Year-over-year "improvement" in adjusted free cash flow. (2018: $2.8 billion).

Stone also said that given the cadence of its upcoming product launches, Ford now expects its adjusted EBIT to be higher in the fourth quarter than in the third quarter. 

Ford had said in April that it expected full-year revenue, adjusted-EBIT margin, and adjusted return on invested capital to improve in 2019 versus its 2018 results, but didn't give specifics at that time.

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