Ford Motor Company (NYSE:F) said that its second-quarter operating loss could exceed $5 billion, but it has enough cash to stay afloat at least through year-end, even if can't reopen its factories.
As expected, Ford reported a net loss of $2 billion for the first quarter, following the abrupt shutdown of most of its factories in mid-March as COVID-19 spread around the world. On an adjusted basis, excluding one-time charges, Ford lost $0.50 per share.
There were few surprises in the automaker's first-quarter earnings report. But there were some items of note in Ford's review of actions taken since its factories were idled, and in its outlook for the next few months.
Key points from Ford's earnings report
- Ford's numbers were in line with its preliminary earnings release earlier this month.
- Before the COVID-19 outbreak, the company was on track to generate adjusted earnings before interest and tax (adjusted EBIT) of at least $1.4 billion for the quarter.
- It had $35 billion in cash as of April 24, enough to last at least through the end of 2020 with no additional funding or production, CFO Tim Stone said.
- Most of Ford's upcoming product launches, including the Bronco, the Mustang Mach-E, and an all-new F-150, remain on track (or slightly delayed).
- But Ford is postponing the launch of its autonomous-vehicle commercial services by a year, to 2022.
- Stone would not confirm or deny that the company is aiming to reopen its U.S. factories on May 18, as reported by The Wall Street Journal on Monday.
- Ford expects an adjusted EBIT loss of more than $5 billion in the second quarter.
How Ford's business units performed
- Ford's Automotive businesses posted an EBIT loss of $177 million for the first quarter, versus a $2.19 billion profit in the first quarter of 2019.
Despite the costs of the factory shutdowns, Ford's North America unit was able to post EBIT of $346 million, as strong sales of SUVs and steady demand for trucks helped offset the high costs. But that profit was more than offset by EBIT losses in Ford's other regional units: $113 million in South America; $143 million in Europe; $241 million in China, where the pandemic peaked in the middle of the quarter; and $26 million in its rest-of-the-world International Markets Group.
- Ford Credit, the company's financing subsidiary, posted earnings before tax of $30 million, a huge decline from $801 million in the first quarter of 2019.
The company attributed the steep decline to higher reserves for anticipated credit losses, lower values of off-lease vehicles, and anticipated lease defaults. It said that Ford Credit's balance sheet and liquidity remain strong, however.
- Ford Mobility, the business unit that encompasses most of Ford's future-technology ventures, posted an EBIT loss of $368 million, roughly in line with its year-ago results.
Special items, cash, and debt
The automaker took a total of $287 million in one-time charges in the first quarter, most related to its ongoing European restructuring and some provisions in the new United Auto Workers contract signed late last year.
As of March 31, Ford had $34.3 billion in cash on hand, plus about $800 million remaining on its credit lines, for total liquidity of $35.1 billion, versus $35.4 billion of total liquidity as of the end of 2019. Against that, it had $30.5 billion in debt attributable to its automotive business, up from $15.3 billion at the end of 2019.
The company raised an additional $8 billion via a bond issue on April 17, much of which appears to have been used to cover the unwinding of its working capital. As noted above, it had about $35 billion in cash remaining as of April 24.
Ford's guidance for the next few months
As noted above, Ford warned auto investors that its second-quarter adjusted EBIT would likely be a loss of more than $5 billion. It summarized the items that went into that estimate:
- Lost variable profit on lower wholesale shipments.
- Higher credit-loss reserves in its financial services subsidiary.
- Pressure on pricing, and higher incentives.
- Lower prices for off-lease used cars.
- Lost profit on parts and accessories.
- Higher freight costs.
- The costs of its enhanced efforts to protect employee health and safety.
Not included: Possible changes in economic conditions and other potentially mitigating factors, Ford said.
The raw numbers
Official first-quarter results were in line with the preliminary results it released earlier this month. For the record, here they are:
|Metric||Q1 2020||Q1 2019|
|Revenue||$34.3 billion||$40.3 billion|
|Adjusted EBIT (loss)||($632 million)||$2.45 billion|
|Adjusted EBIT margin (negative)||(1.8%)||6.1%|
|One-time charges||$287 million||$592 million|
|Net income (loss)||($1.99 billion)||$1.1 billion|
|Adjusted free cash flow (negative)||($2.2 billion)||$1.9 billion|
|Adjusted earnings (loss) per share||($0.23)||$0.44|