Why Ford Earnings Were So Disappointing

Ford Motor Co. (NYSE: F) reported second-quarter 2019 results after markets closed Wednesday. The automaker posted adjusted diluted earnings per share (EPS) of $0.28 on revenues of $38.9 billion. In the same period a year ago, the company reported EPS of $0.27 on revenues of $38.9 billion. Analysts were looking for EPS of $0.31 and revenues of $35.07 billion.

Net income tumbled from $1.07 billion in the second quarter of last year to just $148 million. GAAP EPS dropped from $0.27 a year ago to $0.04, and net income margin faded to a minuscule 0.4%, a drop of 2.4 percentage points year over year. Adjustments totaled $989 million ($0.24 per share) or $1.2 billion on a pretax basis. What Ford calls Global Redesign accounted for $1.21 billion of pretax items.

Earlier this month, Ford reported second-quarter sales fell by 4.1% year over year to 650,336 Ford and Lincoln vehicles, compared with second-quarter 2018 sales of 678,110. Passenger car sales fell 21.4% in the quarter while truck sales rose by 7.5% and SUV sales dropped by 8.6%.

North American market share dipped 0.2 percentage points to 13.8% but revenue rose by 1%, a tribute to Ford’s (and other automakers) ability to keep prices high while volume slips. In Ford’s case, pickups and SUVs command premium prices but the premium was eroded by launch costs and higher warranty costs.

Revenue dropped in South America (down 33%), the Middle East (down 26%), Asia/Pacific (down 1%), and Europe (also down 1%) while rising in China (up 48% to $900 million) International operations contributed about a third of global revenues in the second quarter.

CEO Jim Hackett said:

Midway through this key year of action, we are pleased with the progress we are making toward creating a more dynamic and profitable business. In this time of profound change in our industry, Ford has amazing opportunities to delight customers, innovate and collaborate in new ways, and create value.

Ford updated its full-year guidance for adjusted EBIT to rise from $7 billion in 2018 to $7 to $7.5 billion this year. Adjusted EPS is tagged at $1.20 to $1.35 compared with $1.30 in 2018. These numbers made an already poor report much worse.

Analysts have forecast adjusted EPS for the third quarter at $0.34 on revenue of $34.5 billion. For the full year, the consensus estimates call for EPS of $1.39 on revenue of $144.99 billion.

In after-hours trading Thursday, shares are getting lambasted, down about  7.5% at $9.56 in a 52-week range of $7.41 to $10.57. The consensus 12-month price target on the stock was $10.76 before the earnings report was released last night. The dividend yield on the stock is 5.9.

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