Ford's F-Series Riches Hand CEO Leverage for Turnaround Efforts

(Bloomberg) -- Ford Motor Co. just boosted earnings the old-fashioned way -- strong sales of lucrative pickups and cost cuts.

Adjusted profit for the three months ended in September exceeded the highest analyst estimate in a Bloomberg survey, as sales of F-Series pickups surged 14 percent for the truck line’s best third quarter in a dozen years. Ford said annual earnings will be at the high end of the range it forecast earlier this year.

Ford's F-Series Riches Hand CEO Leverage for Turnaround Efforts

Chief Executive Officer Jim Hackett is now trying to leverage money makers like the F-Series to accelerate investments in models that don’t offer an immediate payback -- self-driving cars and electric vehicles. Investors remained skeptical after Hackett laid out a plan this month to improve the company’s “fitness” by slashing expenses by $14 billion while pushing into new forms of mobility to take on the likes of Alphabet Inc.’s driverless car unit Waymo.

“As great as the F-Series is, you can’t run the whole company on it,” David Whiston, an auto analyst with Morningstar Inc. in Chicago, said in an interview. “The market was clearly expecting more from investor day and they didn’t get it. And they’re still waiting.”

Ford's F-Series Riches Hand CEO Leverage for Turnaround Efforts

Demand for Ford’s bread-and-butter models helped lift net income to about $1.6 billion, up from $957 million a year ago, when the company was spending to launch an aluminum-bodied version of its biggest pickups.

Adjusted profit jumped to 43 cents a share in the third quarter. Earnings this year will be in the range of $1.75 to $1.85 per share, the company said, boosting the low end of its forecast.

“F-Series always plays an important role for the company -- that’s one of our precious franchises,” Bob Shanks, Ford’s chief financial officer, told reporters Thursday at the company’s headquarters in Dearborn, Michigan.

Ford shares rose as much as 2.5 percent and were up 1.2 percent to $12.19 as of 1:36 p.m. in New York. The stock had slipped 2.4 percent through Wednesday’s close since Hackett’s Oct. 3 manifesto.

The sagging share price has stood in stark contrast to General Motors Co., whose stock closed at a record Tuesday after better-than-expected earnings. Investors are embracing GM’s plan for electric and autonomous cars while appreciating the tidy profits sport utility vehicles like the Chevrolet Equinox are hauling in.

Ford's F-Series Riches Hand CEO Leverage for Turnaround Efforts

“Ford is definitely behind in electric vehicles and flexible mobility,” said David Kudla, chief executive officer of Mainstay Capital Management LLC, whose funds own both GM and Ford shares. “Not only is GM articulating a strategy in all of these areas, they are putting the pieces in place. With Ford, we’re still waiting to see the pieces.”

The second-largest U.S. automaker is trying to change the perception that it lags GM. Joe Hinrichs, Ford’s president of global operations, said the company is confident in its technology and strategy relative to competitors. “We need to do a better job of telling that story,” he said in an interview in Detroit this week.

Welcome Detail

Hackett, 62, offered up a couple new details on a Thursday morning conference call. He said Ford would begin testing self-driving cars in a city next year, though he declined to specify the location or number of vehicles. The CEO said Argo AI, which is developing Ford’s autonomous software, has reached a hiring “milestone,” but declined to say how many people it employs.

“There are real things coming from us about that strategy,” Hackett said of autonomous vehicles. “AVs is not a question here at Ford at all. It’s something that’s really on track.”

Hackett also is focusing on cutting costs, promising to pare $10 billion in material spending and $4 billion on engineering outlays over the next five years.

“This is a first down payment from strong cost management,” Shanks said of third quarter results. Ford will not engage in a “headline game” with its competitors to try to curry favor with Wall Street, he added in an interview.

“We want to do it a way that’s a little bit more authentic,” Shanks said. “We’re going to be very thoughtful.”

Cars Struggle

Ford is reducing production at several North American factories through the end of the year. The company is trying to keep inventories from swelling as the U.S. market shrinks for the first time in eight years by scheduling weeks of shutdowns at plants building models including the Mustang sports car and the Focus compact.

Sales of Ford’s passenger cars have fallen 17 percent this year, dropping the company’s total U.S. market share to 14.9 percent, from 15.1 percent last year. Toyota Motor Corp. outsold Ford in the U.S. each of the last three months.

Also weighing on the stock is Hackett’s decision to pull back on a promise made by his predecessor, Mark Fields, that Ford’s profits will rebound in 2018. Hackett said this month he’ll provide guidance on 2018 earnings in January, leading to speculation they will decline as the automaker spends on new technology.

“It’s likely you’ll have to wait quite a while to get any meaningful upside to the stock,” Whiston said. “There is really not a lot of major new product coming until 2019. Between that and the confusion on strategy, it’s hard to get really excited about the stock right now.”

©2017 Bloomberg L.P.