Wall Street has been clamoring for more clarity from Ford Motor Co. on its turnaround strategy for months, and restructuring plans are again overshadowing the storied car maker’s quarterly report.
Ford
is expected to report third-quarter results after the bell Wednesday against a tough backdrop for car makers, which includes falling U.S. car sales, rising interest rates, a slowdown among Chinese consumers and global trade-war concerns.
Ford Chief Executive Jim Hackett took the steering wheel in May 2017, charged with shaking up the 115-year-old company. His management style has been described as “cerebral.”
“Their strategy, if there’s one, is not clear to everyone,” said Michelle Krebs, an analyst with Autotrader.
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Ford missed Wall Street expectations for its second quarter when it reported in July and results were further marred by lowered guidance for the year, with the company saying the quarter had been “particularly challenging” for the Asia Pacific and Europe regions. At the time, Ford vowed to focus on China and take “urgent action to address underperformance.”
Here’s what to expect this quarter:
Earnings: Analysts surveyed by FactSet expect Ford to report adjusted earnings of 28 cents a share in the quarter, compared with adjusted earnings of 43 cents a share in the third quarter of 2017. GAAP earnings are expected at 31 cents a share.
Estimize, a crowdsourcing platform that gathers estimates from Wall Street analysts as well as buy-side analysts, fund managers, company executives, academics and others, is expecting an adjusted profit of 32 cents a share.
Revenue: Analysts polled by FactSet expect third-quarter sales of $36.98 billion for Ford, which would compare with sales of $36.45 billion a year ago. Estimize analysts expect sales to reach $34.43 billion.
Stock reaction: Ford stock has lost 33% year to date, and 31% on a 12-month span. In contrast, the S&P 500 index
is up 4% this year and 8% in the past 12 months.
Other issues: Ford is dealing with an in-between year, with most of its vehicle redesigns, including a revamped Ford Explorer, slated to come to market next year. Its current lineup holds little appeal for car shoppers and it is phasing out most of its sedans in the U.S.
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“Ford’s aging products have hindered sales, and the company has turned to drastic increases in incentive spending to sustain sales, even for some of its best-selling models,” said Jeremy Acevedo, an analyst with Edmunds.
“Until their product pipeline starts flowing, Ford is going to continue struggling to improve its circumstances,” he said.
While pulling out of money-losing U.S. sedans makes sense considering structural pressures, Ford’s sedan-killing decision could be viewed as “premature,” analysts at Consumer Edge said in a recent note to clients.
That’s considering “an increasingly competitive U.S. pickup market, the lack of Ford sales momentum in China, mixed relative performance in the EU, ongoing questions related to a potential turnaround in South America, and still lingering questions about Ford’s technology/mobility strategy,” they said.
On top of “additional clarity” on these issues, the Consumer Edge analysts are hoping to hear some confirmation from management that the company’s dividend remains protected near term, “despite the combination of macro pressures and internal restructuring initiatives,” the analysts said.
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Not only is the dividend at risk, but earnings and cash flow are also under pressure, analysts at Morgan Stanley said in a note Friday. The analysts downgraded Ford’s stock to their equivalent of sell and cut their price target on the stock to $10 from $12, implying 20% upside for the shares.
Ford has announced plans for an $11 billion restructuring over five years with $7 billion of cash charges, and that restructuring is a “crucial step” for the company, the Morgan Stanley analysts said.
There’s concern “that the capital markets do not have confidence in Ford to take decisive action fast enough,” and part of the problem is that management has chosen not to provide a road map of how the $11 billion could be spent.
“We believe investors will pay for details and execution, which we don’t see evidence of currently,” they said. “Strategic transparency has not improved.”