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Ford's Operating Income Slipped 67% on Higher Costs

By John Rosevear - Updated Feb 5, 2020 at 5:33PM

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It's not going to get better anytime soon, either.

Ford (F 1.71%) said that its fourth-quarter adjusted operating income fell by 67% from a year ago, to $485 million, on higher costs related to a new labor agreement and new-product launches. 

Excluding a large noncash charge for pension revaluations, Ford generated adjusted earnings of $0.12 per share on automotive revenue of $36.7 billion. That fell short of Wall Street's estimate of $0.16 per share on automotive revenue of $36.67 billion, as reported by Thomson Reuters.

For the full year, Ford posted adjusted earnings of $1.19 per share, down from $1.30 a year ago and a penny short of its most recent guidance range. 

Guidance for 2020 was also weaker than analysts had expected. 

The company's stock fell sharply after the results were released.

A blue 2020 Ford Explorer, a 7 passenger crossover SUV.

A troubled launch for Ford's all-new 2020 Explorer had a big impact on its full-year results. Image source: Ford Motor Company.

The raw numbers

Here are the key numbers from Ford's fourth-quarter and full-year 2019 results. 

Metric Q4 2019 Change (Decline) vs. Q4 2018 2019 Change (Decline) vs. 2018
Revenue $39.7 billion (5%) $155.9 billion (3%)
Wholesale shipments  1,354,000 (8%) 5,386,000 (10%)
Adjusted EBIT $485 million (67%) $6.4 billion  (8.6%)
Adjusted EBIT margin 1.2% (2.3 pp) 4.1% (0.3 pp)
Net income (loss) ($1.7 billion) $1.6 billion worse $47 million $3.6 billion worse.
Adjusted earnings per share $0.12 $0.18 lower $1.19 $0.11 lower
Adjusted free cash flow $498 million (67%) $2.78 billion no change

Data source: Ford. EBIT = earnings before interest and tax. Adjusted figures exclude the effects of one-time items; Ford took $2.7 billion in one-time charges in Q4 2019 and $1.2 billion in Q4 2018. Wholesale shipments are rounded to the nearest thousand. Pp = percentage points. 

About Ford's one-time charges

Ford had previously warned auto investors that it would take a one-time charge against its fourth-quarter earnings related to its pension plans. This charge, which totaled $2.3 billion, is related to an annual remeasurement of the value of the investments in Ford's pension and benefits portfolios. It's simply an accounting adjustment; not a big deal for investors. 

Ford took an additional $400 million in one-time charges related to its ongoing restructuring efforts in Europe, South America, and China. 

How Ford's business units performed

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

North America: Ford earned $700 million in North America in the fourth quarter, down from about $2 billion a year ago. The decline can be explained by an 8% drop in wholesale shipments and higher costs, both related to an ongoing product-line overhaul, and contract-related bonuses for workers represented by the United Auto Workers. 

Ford North America's EBIT margin, a number widely watched by investors, was just 2.8% in the fourth quarter, down from 7.6% a year ago.

For the full year, Ford North America earned $6.6 billion, down from $7.6 billion in 2018.

Europe: Ford earned $21 million in Europe in the fourth quarter, a big improvement over the $199 million loss it posted in the year-ago period. Wholesale shipments and revenue both fell 4%, driven by the "planned discontinuation of low-margin products," Ford said in a statement. Ford Europe's EBIT margin was thin at just 0.3%, but improved from negative 2.7% in the fourth quarter of 2018.

For the full year, Ford Europe lost $47 million, a big improvement over its $398 million loss in 2018. 

South America: Ford South America lost $176 million in the fourth quarter, a $23 million improvement from a year ago that came despite a 4% decline in revenue and wholesales. Tighter cost controls and better pricing explained the improvement. 

For the full year, Ford South America lost $704 million, slightly worse than the year prior. 

China: Ford China, which is in the midst of a major overhaul, lost $207 million in the fourth quarter. That's a big improvement over the $534 million loss it posted in the year-ago period, driven by sharply reduced structural costs and improved results from Ford's joint ventures with Chinese automakers.

For the full year, Ford China lost $771 million, versus a $1.55 billion loss in 2018.  

Middle East and Africa: Ford Middle East and Africa lost $83 million, $34 million worse than a year ago, on higher costs. For the full year, the region lost $141 million, versus a $7 million loss in 2018.

Asia Pacific: Ford's rest-of-Asia unit lost $40 million in the fourth quarter, down from a $153 million profit in the fourth quarter of 2018. Higher costs and pricing pressures were the culprits here. For the full year, the region lost $23 million, down from a profit of $444 million in 2018. 

Ford Credit: Ford's financing subsidiary generated profit before tax of $630 million in the quarter, down slightly from $663 million a year ago on lower auction values for off-lease vehicles. Credit metrics remain solid. For the full year, Ford Credit earned $3 billion, up from $2.6 billion in 2018. 

Debt and liquidity

As of Dec. 31, Ford had $22.3 billion in cash and an additional $13.1 billion in available credit lines, for total liquidity of $35.4 billion. Against that, it had $15.3 billion in well-structured long-term debt. 

Looking ahead: Guidance for 2020

For 2020, Ford currently expects:

  • Adjusted EBIT between $5.6 billion and $6.6 billion.
  • Adjusted free cash flow of $2.4 billion to $3.4 billion. 
  • Capital expenditures of $6.8 billion to $7.3 billion (2019 total: $7.6 billion). 

Ford noted that its guidance for 2020 doesn't take into account the potential effects of the coronavirus.

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