Ford Truck Profits Hide Need for More Cuts, Morgan Stanley Says

Keith Naughton

22 May 2019, 11:07 AM IST

(Bloomberg) -- Ford Motor Co. may need to cut more than the recently announced 7,000 salaried workers to make up for slowing auto sales, a situation that’s not readily apparent because its F-Series pickup helped “cover industry blemishes” with $10 billion in pretax earnings last year, Morgan Stanley says.

To make up for an estimated 5% drop in global revenue as China ceases to be an engine of growth, Ford would need to cut another 23,000 salaried workers, auto analyst Adam Jonas wrote in note to investors Tuesday. His analysis assumes no additional cost reductions, while Ford has said it is targeting $25.5 billion in cuts by 2022.

“It’s better that Ford execute restructuring at a time when its truck business is producing so much profitability and cash flow,” Jonas wrote. “We estimate the F-Series franchise alone would have placed Ford in the Top 40 on the 2018 Fortune 500 list.”

Jonas calculates that the F-Series generated about $42 billion in sales last year and $6.5 billion in net income, almost twice the $3.7 billion net profit Ford posted companywide for 2018.

Ford said that its salaried staff cuts, to be completed in August, will save the company $600 million a year. They are part of an $11 billion restructuring Chief Executive Officer Jim Hackett is leading to reverse a profit slide and prepare Ford for a future of electric and self-driving vehicles. Ford shares jumped above $10 last month after the company posted better-than-expected earnings that were supported by cost cuts and fat profits from the F-Series.

Ford shares fell less than 1 percent to $10.22 at 2:42 p.m. in New York, continuing their downward drift since the automaker announced its salaried cutbacks Monday.

To contact the reporter on this story: Keith Naughton in Southfield, Michigan at knaughton3@bloomberg.net

To contact the editors responsible for this story: Craig Trudell at ctrudell1@bloomberg.net, Kevin Miller