Ford CEO’s ‘Thoughtful’ Approach Fails to Win Over Wall Street
(Bloomberg) -- After leading Ford Motor Co. for 20 months, Chief Executive Officer Jim Hackett is still struggling to win over Wall Street.
Shares are down 22 percent during his tenure, and even big moves like an exit from the sedan market in America and a deal to align with Volkswagen AG to develop future models hasn’t reversed the slide. Ironically, the Street criticizes Hackett for the same failing as his ousted predecessor Mark Fields: moving too slowly to fix Ford’s shortcomings.
“Wall Street is just frustrated and tired of waiting,” said David Whiston, an analyst with Morningstar Inc., who rates Ford the equivalent of a buy. “It doesn’t look like they’re moving quickly.”
In a presentation to analysts last Wednesday, Hackett appealed for more patience and belief in his “thoughtful” approach to engineering an $11 billion restructuring of the company. Investors responded by sending shares down more than 6 percent, the biggest drop in a year. This afternoon, the automaker will post fourth-quarter earnings it has already signaled were less than analysts anticipated. It said adjusted earnings per share was 30 cents in the year’s final three months, a penny below the average estimate of analysts at the time and down from 39 cents a year earlier. For the full year, Ford said its earnings before interest and taxes fell about 27 percent to $7 billion, as losses mounted in China and Europe.
But unlike rival General Motors Co., Hackett has declined to provide specific earnings guidance for this year, other than to say profits could improve as new models roll out.
“It feels like they still don’t have a lot of details about their restructuring,” said Jeff Schuster, senior vice president of forecasting for researcher LMC Automotive. “Wall Street doesn’t take to that very well. They want to be convinced that things are going to turn around, and the company is on the right path. Ford hasn’t demonstrated that.”
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This wasn’t the way it was supposed to be for Ford under Hackett, 63. He arrived on a mission to accelerate what he called the company’s “clock speed.” As CEO of office-furniture maker Steelcase Inc., Hackett outfitted the modern workplaces of Silicon Valley and established high-profile friendships with tech gurus like Steve Jobs. He was billed as bringing the Valley’s urgent ethos to the 115-year-old automaker. Early on, the former University of Michigan football player spoke of putting a “shot clock” on executives to speed up decisions.
The plan going into last week’s Detroit auto show was to show how some of Hackett’s bigger bets are beginning to pay off. Ford introduced a redesigned Explorer sport utility vehicle and unveiled a partnership to develop commercial vehicles with VW. But Ford was criticized for taking nearly a decade to redesign an important model, and some analysts even viewed the VW deal as favoring the German automaker -- at least until the two companies can deliver on the promise of a partnership on electric and self-driving cars.
By week’s end, Hackett’s boss, Executive Chairman Bill Ford, was defending his CEO’s strategy and appealing for patience from Wall Street analysts frustrated that the company won’t provide hard numbers on job cuts and financial targets.
“We can’t really tip our hand beforehand on a lot of the things that we’re doing,” Ford said in an on-stage chat during the auto show with Detroit News business columnist Daniel Howes. “So, we’re having to sort of say to people, well, take our word for it. Well, analysts have models they have to create and taking your word for it doesn’t fill out a model.”
Morningstar’s Whiston said of Ford: “They’ve been saying ‘take our word for it’ for a long time.”
Ford shares fell by as much as 2.6 percent in trading today and were down 1.9 percent to $8.34 at 1:21 p.m. in New York.
Morgan Stanley analyst Adam Jonas, who has sparred with Hackett on Ford earnings calls, issued a note last week that heaped praise on GM CEO Mary Barra while drawing a stark contrast with Ford, which he wrote “has a significant gap to GM in terms of repositioning the business for long-term sustainability.” Jonas rates GM the equivalent of a buy and cut Ford to a hold in October.
“We see a path to improvement for Ford but believe the situation may need to get worse before it gets better,” Jonas wrote in the Jan. 17 note. “Ford has been here before, and we believe has every opportunity to improve its fortunes under the right combination of leadership and strategy.”
Hackett has had highlights. His move last April to abandon the low-margin sedan business in favor of the booming market for SUVs and trucks came ahead of GM’s decision to cut car lines and close factories. Ford, so far, hasn’t had to shut plants as it shifts away from sedans. The company also received kudos for its self-driving car partnership with Argo AI after it gave analysts and reporters test rides in Miami in November.
"The future looks brighter for Ford in 2019, as the new Ranger and Explorer will likely generate needed excitement and sales," said Jeremy Acevedo, an analyst for automotive researcher Edmunds.
But a series of letdowns and course corrections have shaken Wall Street’s faith. It started when Hackett asked for 100 days to formulate a plan and underwhelmed with his first address to the analysts in October 2017. The plan was 35 days late. He then promised to achieve an 8 percent global pretax margin by 2020, only to abandon that months later as Ford’s fortunes worsened. After announcing a corporate overhaul in July, he declined to provide details and canceled a planned analyst meeting.
“Ford’s not helping itself by doing things like canceling analyst day,” said Whiston. “That doesn’t help your credibility.”
In his appeal to analysts last week, Hackett questioned the credibility of his rivals, accusing them of overpromising and underdelivering. “I have examples of some things that didn’t work from our competition,” he said without citing specifics. “What I have to do to get your confidence high in me and this team is to continue to share proof points that the thoughtfulness is converting” to results.
That may be the opposite of what investors want, LMC’s Schuster said.
“They’ve taken that slow, methodical approach to restructuring the company,” Schuster said. “And frankly, the industry is just moving much faster than that now. And I think the margin for error is much, much less than it used to be.”
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