ii view: Restructuring charges overshadow at Ford

by Keith Bowman from interactive investor |

Car manufacturer Ford swallows the costs of European and South American restructuring.

Second-quarter results

  • Revenue of $38.9 billion is flat on Q2 2018
  • Reported net income of $148 million, down from $1.1 billion
  • Adjusted profit excluding charges flat at $1.7 billion
  • Earnings per share 4 cents, down from 27 cents 

Chief executive 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."

ii round-up:

Ford (NYSE:F) makes vehicles under its Ford and Lincoln brands. Headquartered in Dearborn, Michigan, the company employs around 196,000 people worldwide.

Environmental concerns and the associated demise of the diesel engine and rise of electric vehicles now dominate Ford's and the wide car industry's strategy. 

It is planning to cut 12,000 jobs across its European business, launch new models and add electric technology to its vehicles in an attempt to bring the loss-making region back to profit. By the end of 2020 it will have 18 European production facilities, compared to 24 at the start of this year. 

It recently confirmed plans to extend its alliance with Volkswagen (XETRA:VOW) beyond a cooperation on commercial vehicles and into European electric vehicles. 

Second-quarter results came in below analyst forecasts. Charges of $1.2 billion for the restructuring of its European and South American operations overshadowed the numbers. Most of Ford's profit came from its home North American market. Europe and Asia made small profits, while China and South America lost money. 

Accompanying full-year earning guidance also fell short of forecasts. The share price declined in after-hours US trading. 

ii view:

Despite a lack of charging infrastructure across the UK, for example, car makers are now with haste moving towards cleaner fuels. Climate change, increased government legislation and the success of Tesla (NASDAQ:TSLA) are all contributing factors. Ford is now restructuring its operations away from diesel and towards electric and hybrid production. Unlike German competitors, it has not compromised on emissions, thereby avoiding costly regulator fines. 

For investors, a change in the business model appears long overdue. The road ahead is likely to prove long and bumpy, although a dividend yield of over 5% may help cushion the ride for patient investors. 

Positives

  • Action to restructure the business underway
  • Management emphasises strong balance sheet
  • Prospective dividend yield of over 5%

Negatives

  • Auto operations profit decline driven by China and Europe
  • Commodity and currency headwinds in 2018 meant costs rose as it entered a major product refresh cycle
  • Air quality concerns and tax changes have hit diesel sales

The average rating of stock market analysts:

Strong hold

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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