Ford Feels Wall Street's Pain Over Slow Turnaround
(Bloomberg) -- Ford Motor Co. needed to stop the bleeding before it could start showing gains from herculean efforts to turn the company around.
That’s the key takeaway from Chief Executive Officer Jim Hackett’s second try in as many weeks to explain to analysts why Ford has been struggling more than some of its peers to weather a host of headwinds hitting the auto industry. He said he understands their disappointment after the company posted only its second quarterly loss since 2009.
“I respect that,” Hackett said of frustrations with how long Ford’s restructuring is taking. “But it is what it takes to build an industrial model that we’re talking about -- to do it the right way and not have it fall apart.”
Hackett, 63, was more blunt than he’s ever been in the 20 months since he became CEO about what has ailed Ford. He described how its product development had been “constipated” days after taking the wraps off a new Explorer sport utility vehicle that hadn’t been redesigned in almost a decade. And he painted a picture of a company that allowed costs to creep up under his two predecessors.
From 2013 to 2017 -- a period coinciding with the last years of Alan Mulally’s tenure and the abbreviated reign of Mark Fields -- Ford’s structural costs grew by an average of about $1.7 billion annually, Hackett said.
Ford “arrested” this trend last year and will keep structural expenses flat in 2019, the CEO said on a conference call with analysts. It can move more quickly now to bring fresh SUVs, pickup trucks and other new models to market.
The call was a change in tack from Hackett’s messaging a week earlier, when the CEO’s plea for patience and the lack of specific guidance on Ford’s earnings outlook for 2019 sent shares down 6.2 percent, the biggest drop in a year. The stock was little changed in pre-market trading Thursday.
Hackett has been trying to overhaul the automaker by killing off slow-selling sedans, boosting spending on SUVs and trucks, and plotting salaried staff cuts worldwide. Last week, he announced an alliance with Volkswagen AG to jointly develop commercial vans and trucks and said the two companies will explore working together on electric and self-driving cars.
But analysts have criticized the company for not providing more details on its turnaround plans and for giving vague earnings guidance. Ford executives didn’t elaborate much beyond an outlook issued last week: that there’s potential for improvement this year in revenue growth, profit margin and other measures.
Bob Shanks, Ford’s chief financial officer, also addressed fears that have been percolating in the debt market about the risk of the company’s credit ratings falling back into junk status. This prospect for one of the largest corporate-bond issuers outside the financial sector gained urgency after Moody’s Investors Service downgraded Ford to the last rung of investment grade in August.
“My interpretation of their concerns is that it’s the operating performance. The balance sheet is very strong,” Shanks said of ratings companies’ views on Ford. “We’ve got to deliver stronger operating performance.”
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