ii view: Ford lowers 2019 profit estimates

China dampens the outlook. Is a 6% dividend yield enough to compensate investors?

Third-quarter results

• Revenue down 2% to $37 billion
• Headline net income down 57% to $425
• Earnings Per Share (EPS) down 56% to 11 cents 
• Adjusted EPS excluding one-time charges up 17% to 34 cents

Guidance

Full-year EPS forecast between $1.20 and $1.32, down from $1.20 and $1.35

Chief Executive Jim Hackett said:

“Our Global Redesign is about making choices to transform our organization, to become the
world’s most trusted company and a clear leader in an era of rapid change. We are getting stronger today and we have more work to do.”

ii round-up:

Vehicle maker Ford Motor Co (NYSE:F) reported sales and earnings which beat analyst estimates but lowered its full-year profit guidance thanks to lower Chinese sales, higher warranty costs and increased sales incentives required in its home US market. 

The share price retreated by just over 2% in after-hours US stock market trading. 

Restructuring costs under its Global Redesign programme again hit headline profits. Costs included those to cover the ongoing reshaping of its European business and charges made for the proposed creation of a joint venture in India with Mahindra & Mahindra. 

Excluding one-time charges, earnings per share of 34 cents exceeded the consensus estimate of 26 cents (source: Refinitiv). 

Continued product renewal, including a new F-150 pick-up truck, helped its North American market maintain its mantle as the company’s key profit generator. The group’s credit business maintained its momentum, with earnings up 9%. 

Management made no mention of its plans to extend its alliance with Volkswagen AG (XETRA:VOW) beyond a cooperation on commercial vehicles and into European electric vehicles.

ii view:

Unsurprisingly, Ford is not immune to broader global economic trends. Slowing sales volumes in China contributed to its lowering of full-year guidance. Environmental trends, given concerns for climate change, are also impacting, with the company restructuring many of its operations away from diesel and towards electric and hybrid production.

For investors, changes in the business model have been long overdue. Tightening government legislation and the success of Tesla Inc (NASDAQ:TSLA) cannot be ignored. But the road ahead is likely to prove long and bumpy. A historic and forward dividend yield of over 6% (not guaranteed) may help cushion the ride for investors, although a recent downgrading of the company’s crediting rating to junk status by Moody’s needs to be considered. 

Positives

• Action to restructure the business is being taken
• Launching new vehicles including a Mustang-inspired battery-electric vehicle in North America
• A prospective dividend yield of over 6% (Not guaranteed)

Negatives

• Air quality concerns and taxation changes have led to falls in diesel sales across the industry
• Undertaking negotiations with worker unions
• Credit rating downgrade by Moody’s to junk status

The average rating of stock market analysts:

Strong hold