Ford’s Attempt to Turn Corner Boosted by Big Earnings Beat

(Bloomberg) -- Ford Motor Co.’s restructuring efforts stayed on track despite the global pandemic with much better-than-expected results in its most recent quarter, even as the automaker projects its first full-year operating loss in more than a decade.

The automaker said Thursday its second quarter operating loss was less than half the $5 billion deficit it had predicted, due mainly to undiminished demand for its sport utility vehicles and trucks despite springtime factory and showroom closures.

In a conference call with reporters, Tim Stone, Ford’s chief financial officer, said unexpectedly strong demand for its most popular models such as its F-Series pickup allowed it to charge higher prices with lower incentives. The automaker also benefited from a smooth ramp-up at its plants, which returned to 95% of pre-virus production by the end of the second quarter.

“We had a safe and effective, very productive return to work,” Stone said. “Production and wholesales were better than we anticipated 90 days ago.”

The economic crisis caused by the viral outbreak hit Ford two years into an $11 billion global reorganization that leaves Jim Hackett, the company’s chief executive officer, little room for error amid an extended earnings slump. It also comes as the automaker prepares to roll out three critical new models aimed at reversing its fortunes: the electric Mustang Mach-E, the revived Bronco SUV and a redesigned version of its top-selling F-150 pickup, its most profitable model. The virus shutdown at Ford plants delayed those launches by about two months, the company said.

The stock rose 3% in postmarket trading to $6.94. Shares are down about 27% for the year.

Ford’s adjusted loss of 35 cents a share was considerably better than the $1.18 per share loss analysts forecast. But investors will be looking for the company to execute flawlessly on its restructuring and key new-model launches.

“With Ford having passed the worst of Covid upheaval, we believe the focus now returns to the company’s redesign efforts,” Dan Levy, an analyst at Credit Suisse, wrote in a report published after Ford released its earnings. “While the product opportunity is bright with F-150 and Bronco, there is more work to be done on restructuring, and we seek color from Ford on the pace of restructuring actions.”

Bronco Boast

Ford’s $1.9 billion loss before interest and taxes compares with crosstown rival General Motors Co.’s second-quarter loss of $536 million. In the third quarter, Ford is projecting an operating profit of $500 million to $1.5 billion. The full year loss will be driven by a fourth quarter deficit from retooling costs at two factories that will build the redesigned F-150.

The anticipated return to the black in the current three months stems from Ford’s efforts to keep assembly lines humming and inventory re-stocked. “It really reflects us continuing to operate the business and navigate the crisis that we’re in in an effective manner,” CFO Stone said.

Ford provided an update on the Bronco by announcing 150,000 reservations for the new vehicle, prompting it to adjust production targets to meet higher-than-expected interest. Production will start early next year with the first deliveries in the spring.

“Initial demand for Bronco is so high that we are actively working on increasing our annual production right now,” CEO Hackett said on a conference call with analysts.

International Woes

With factories closed for six weeks to slow the spread of the virus, automotive revenue plunged 54% to $16.6 billion, more than the $16.2 billion analysts had forecast. Ford noted strong demand for the F-150 full-size and Ranger mid-size trucks, as well as the Explorer and Lincoln Aviator SUVs, even though the company lost an adjusted $974 million in North America.

Ford’s international operations didn’t provide much relief. It lost an adjusted $136 million in China -- the world’s largest auto market -- along with red ink totaling $664 million in Europe and $165 million in South America.

The automaker ended the second quarter with more than $39 billion in cash on hand, including $10 billion in new debt. Ford said it repaid almost half of its $15.4 billion in revolving credit and expects to maintain or exceed a cash balance of $20 billion for the rest of 2020 “even if global demand declines or there is another major wave of pandemic-related plant closures.”

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