Ford Motor Company (NYSE:F) lost $1.9 billion in the second quarter on an adjusted operating basis, a better-than-expected result driven by resilient pricing in North America and Europe as customers continued to buy vehicles amid the COVID-19 pandemic.
On an adjusted basis (meaning that one-time items are excluded), Ford lost $0.35 per share, handily beating the average loss of $1.17 per share expected by Wall Street analysts polled by Thomson Reuters.
Revenue of $19.4 billion also came in ahead of Wall Street's $15.95 billion consensus estimate.
Ford's shares rose about 3% in after-hours trading shortly after the news was released.
Surprise! Technically, Ford posted a net profit
Despite the steep drop in production and sales in the second quarter -- most Ford factories outside of China were closed for seven to eight of the quarter's 13 weeks -- Ford reported a net profit of $1.1 billion for the quarter, thanks to a $3.5 billion gain on its investment in Pittsburgh-based self-driving start-up ArgoAI.
Ford recorded the gain following the completion of Volkswagen's investment in ArgoAI in June. That investment valued ArgoAI at $7.5 billion, CFO Tim Stone said in a conference call with reporters.
It's a paper gain, but it's still good news.
Highlights, such as they are, from Ford's second-quarter report
Auto investors knew that the second quarter would be a rough one for Ford. Ford itself had said in April that its adjusted operating loss could exceed $5 billion in the quarter. Viewed in that light, the $1.9 billion loss looks like a win.
Here's how Ford's business units performed in the quarter.
- Ford North America posted an EBIT (earnings before interest and tax) loss of $974 million, down from a profit of $1.7 billion in the second quarter of 2019. Wholesale shipments fell 61%, but Ford was able to mitigate the impact of its factory shutdowns to some extent by remaining disciplined with incentives and reducing costs by about $800 million from a year ago.
- Ford's EBIT margin in North America, a carefully watched number under most circumstances, was negative 8.9%, down from (positive) 7.1% a year ago.
- Ford South America's EBIT loss was $165 million. That was actually an improvement from the $205 million loss it posted a year ago, as cost controls and pricing gains more than offset the effects of a steep 75% drop in revenue.
- Ford Europe's EBIT loss was $664 million, down from a profit of $53 million a year ago. Wholesale shipments fell 58%, revenue fell 51%, pricing improvements helped offset the impact of the volume decline.
- Ford China's EBIT loss was $136 million, a slight improvement from the $155 million it lost in the year-ago quarter. Wholesale shipments rose 34% -- remember that China reopened before the U.S. and Europe -- on good demand for the new-to-China Ford Escape and Lincoln Corsair SUVs.
- Ford's rest-of-the-world International Markets Group lost $150 million on an EBIT basis, versus a loss of $72 million on that basis a year ago. Wholesale shipments fell 64%, revenue fell 60%, cost cuts helped.
- Ford Credit earned $543 million in pre-tax profit, versus $831 million a year ago. Lower volumes and higher depreciation on leases explained the decline; credit metrics and the subsidiary's balance sheet remained strong.
One more thing: While this is technically third-quarter news, Stone said that Ford has taken over 150,000 reservations for the all-new Bronco SUV.
Ford's cash and debt as of June 30
Ford ended the second quarter with $39.3 billion in cash and about $500 million in available credit lines, for a total of $39.8 billion in liquidity available to its automotive business.
Against that, it had $40 billion of debt, a result of drawing down its credit lines and issuing new bonds in March and April.
Ford's adjusted free cash flow was negative $5.3 billion, driven by the adjusted EBIT loss and the "unwinding" of its working capital. (Like most automakers, Ford records revenue when vehicles are shipped; with its factories idled, it had no revenue to record, but it still had to pay suppliers and vendors for parts and services purchased before the shutdown. Those payments "unwound," or depleted, its working capital.)
Ford's outlook for the rest of 2020
Stone said that Ford's outlook assumes that economic conditions will remain steady for the remainder of the year and that there will be no significant coronavirus-related disruptions of Ford's production or distribution operations.
Assuming that's how it goes, Ford expects (positive) adjusted EBIT of between $500 million and $1.5 billion in the third quarter, reflecting weaker global demand for new vehicles and a lower profit from Ford Credit.
In the fourth quarter, when Ford will launch three major products (the new F-150, the electric Mustang Mach-E, and the Bronco Sport), Stone expects an adjusted EBIT loss. That expectation reflects normal effects from production downtime as factory tooling is changed, launch-related costs, and continued lower new-vehicle sales across the industry, he said.
Not surprisingly under the circumstances, Ford currently expects an adjusted EBIT loss for the full year, Stone said.