Ford Shares Fall as Profits Suffer From ‘Consistent Plague’

(Bloomberg) -- Ford Motor Co.’s shares tumbled 6%, the most in three months, on Thursday after the carmaker lowered its full-year outlook amid deteriorating Explorer car sales and slowing growth in its international markets.

Analysts said Ford’s many troubles will keep weighing on profits, especially as the U.S. car market is also expected to slow down next year.

Read more: Ford Cuts Profit Outlook on Higher Incentive, Warranty Costs

Here’s a round up of analyst comments after Ford’s results and its forward guidance.

Deutsche Bank, Emmanuel Rosner

(hold from buy, PT $11 from $12)

• Downgrade reflects ongoing near-term earnings outlook deterioration, from operational issues such as growing warranty and launch costs, and market pressures on Ford’s U.S. pricing and China volumes
• “While we still believe Ford has a large potential from fixing its international operations, the benefit from its $7 billion restructuring program will likely take longer to materialize than previously expected, and could be more than offset next year by large costs from launches in the U.S. and CO2 compliance in Europe”
• With no real inflection point expected in free cash flow before 2021, Deutsche’s also worried about Ford’s preparedness for an eventual U.S. industry downturn, and the impact it could have on its balance sheet

Evercore ISI, Chris McNally

(in line, PT $8)

• “For Ford’s turnaround plans, warranties and China represent a consistent plague on profitability the last 2 years; while N.A. incentives [are] a worrying trend into 2020”
• “Weak internals mean the third-quarter strength will be dismissed as the Street will assume it is timing-related versus a very concerning fourth-quarter outlook”

Buckingham, Joseph Amaturo

(neutral, PT 48)

• Concerned about end-of-cycle dynamics that likely result in additional earnings and cash flow risk, looking ahead
• “The company’s international market is vulnerable to incremental softness”

Morgan Stanley, Adam Jonas

(overweight, PT $12)

• The reduction in guidance isn’t entirely a surprise given recent problems with the Explorer. MS estimated the Explorer to be in the range of a $500 million “problem” for all of 2019
• “What was perhaps new was the comment about ‘higher than planned incentives’ in North America and the deterioration in China where we calculate a consolidated operati[ng] margin of negative 28% that may have taken investors by surprise”
• “While consensus will likely fall for 2019 and possibly for 2020, we believe much of the bad news on Ford’s current performance, while perhaps not quite fully in consensus numbers, may be fully in the price on a relative basis”

To contact the reporter on this story: Esha Dey in New York at edey@bloomberg.net

To contact the editors responsible for this story: Brad Olesen at bolesen3@bloomberg.net, Scott Schnipper

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