Ford CEO's Call for Patience Spurned as Shares Fall Most in Year
(Bloomberg) -- Ford Motor Co. boss Jim Hackett took on Wall Street’s criticism that he’s moved too slowly and shared too little about restructuring plans, asking analysts to believe in his “thoughtful” approach while posting profit that fell short of estimates.
Investors didn’t buy it. Ford’s shares fell steadily all day, ending down 6.2 percent, the biggest drop since a year ago, when the automaker delivered disappointing results.
“I don’t believe CEO longevity is something that’s attained when companies are left in tatters,” Hackett said Wednesday at a Deutsche Bank auto conference in Detroit. “What causes the thoughtful part is not lack of initiative. It’s not not knowing what to do.”
“What I have to do to get your confidence in me and this team is to continue to share proof points that the thoughtfulness is converting” into results, the chief executive officer added. “We have plans to do that.”
Hackett made the appeal after Ford reported preliminary profit for 2018 of $1.30 a share, below analysts’ average projection for $1.32. There’s potential for improvement on revenue, earnings before interest and taxes, and adjusted operating cash flow this year as Ford rolls out new sport utility vehicles and pickups, Chief Financial Officer Bob Shanks said.
Some analysts were disappointed Ford didn’t provide specific forecasts for 2019 earnings.
“Investor patience is likely to be further tested today,” Chris McNally, an analyst at Evercore ISI, wrote to clients. “Ford has basically once again said ‘your guess’ to the financial community with respect to specific financial guidance.”
The stock plunge was the worst since a year ago, when Ford capped the North American International Auto Show with a disappointing profit forecast. The shares ended up slumping 39 percent last year.
Ford since then has announced plans to abandon the traditional sedan market in the U.S. and roll out a range of SUVs, including the redesigned Explorer, and expand its line of trucks by reviving the midsize Ranger. Beyond the restructuring that Morgan Stanley estimated could result in 25,000 job cuts, Hackett also is spending a combined $15 billion in the coming years developing electric and self-driving vehicles.
Hackett, 63, said he thought analysts were being “too casual” about how Ford is revamping a lineup that has strong SUVs, pickups and commercial vehicles. Ford announced an alliance Tuesday with Volkswagen AG to jointly develop delivery vans and midsize trucks, and the two companies continue to talk about joining forces on autonomous and electric autos.
“We are moving right now -- we have clear, direction, focus, a sense of urgency,” Hackett said. The CEO, who started in the role in May 2017, said his son told him he looked more comfortable doing interviews at this week’s Detroit auto show than he was last year.
Shanks, the CFO, said Ford’s 2018 results included a non-cash pretax loss of $877 million in its global pension funds due to declining financial markets late last year. The automaker’s pension funds remain fully funded, he said.
Revenue rose 2 percent to $160.3 billion last year, according to Ford’s slideshow presentation. Adjusted Ebit fell about 27 percent to $7 billion, mainly due to Ford’s struggles in China and Europe.
This year, Ford expects tariffs imposed by the U.S. and China to be a $700 million headwind, with the added costs including higher commodity prices.
Ford also is keeping a keen eye on the U.K.’s efforts to leave the European Union. The company has the top-selling auto brand in the country, which accounts for about 30 percent of its European sales. Its plans for the year assume a so-called soft Brexit, though Shanks conceded the situation is “highly uncertain” after the Parliament’s vote Tuesday against the government’s proposed deal.
“We are urging the U.K. government and Parliament to work together to avoid the country leaving the EU on a no-deal, hard-Brexit basis on March 29,” Shanks said. “Such a situation would be catastrophic for the U.K. auto industry and for Ford’s manufacturing operations in the country.”
In North America, Ford has set a “Return to 10” objective for its profit margin, which was 7.9 percent last year. To get back into double digits, the company is cutting an unspecified number of salaried workers to trim costs.
And while Ford doesn’t see a major pullback in U.S. auto sales this year, the company does expect a decline as rising interest rates and higher prices deter some consumers.
©2019 Bloomberg L.P.