Investors Can See Some Hope in the Mixed Q4 Message on Ford Stock

Ford stock - Investors Can See Some Hope in the Mixed Q4 Message on Ford Stock

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All told, Ford Motor Company (NYSE:F) lost $116 million last quarter, overcome by pension and layoff expenses, unfortunate exchange rates and rising materials costs. That figure translates into a loss of three cents per share of Ford stock.

The numbers change dramatically for the better when stripping out all the unusual and one-time costs. On a non-GAAP basis, Ford turned a profit of 30 cents per share on slightly higher revenue. Still, cash-bleeding operations anywhere outside of North America, and in China particularly, continue acting as drag on the company’s bottom line, with no clear end in sight for the iconic carmaker.

Investors aren’t deterred though, sending Ford stock up firmly in the wake of a lackluster quarterly report.

Ford Stock and Q4 Earnings

For the quarter ending in December, Ford Motor turned $38.7 billion worth of automotive revenue into a non-GAAP profit of $1.2 billion, or earnings of 30 cents per share of Ford stock.

Automobile sales were up slightly from the year-ago figure of $38.5 billion, topping analyst expectations of $36.9 billion, and revenue reached a total of $41.8 billion when factoring in business other than auto sales (like financing). Non-GAAP profits fell from the 39 cents earned in the same quarter a year earlier, however, and fell short of the 32 cents analysts were modeling.

Pesky one-time and unusual expenses readily turned a decent quarter into an ugly one.

A pension adjustment shaved roughly $900 million off the bottom line during the year, while over the course of fiscal 2018 new tariffs and increased materials prices cost Ford nearly an extra $2 billion. A recall and disadvantageous exchange rates sapped Ford of another $1.5 billion in the recently-ended year.

A large portion of all those costs were booked during the fourth quarter.

Operating cash flow came in at $1.5 billion for the quarter, down $700 million on a year-over-year basis. Full-year cash flow of $2.8 billion was off of 2017’s total by $1.4 billion.

Drilling Down

The unexpected expenses aside, Ford still has operational problems that can’t be ignored. North America was the company’s sole bright spot last quarter, and even then it wasn’t terribly bright.

Total revenue grew by $1.7 billion to reach $25.8 billion, but the total 738,000 vehicles sold during Q4 was down year-over-year by 1000 units. Market share slipped a little, to 12.8%, although EBIT margins improved slightly to 7.6%. The fourth quarter’s North American trends mostly reflect North America’s full year figures.

Unfortunately, results logged by overseas operations for the fourth quarter were also a microcosm of the whole year.

Ford’s Asia Pacific arm continues to be an unworkable venture. Unit sales fell by 198,000 to 254,000 vehicles and revenue fell roughly $200 million, to $3.6 billion. In total, the company’s Pacific arm lost $381 million during the fourth quarter, and $1.1 billion for the full year on a 32% decline in total unit sales.

All of its Asia Pacific woes come from China, and in particular, from joint ventures that haven’t panned out as well as hoped.

China is hardly Ford’s only lingering problem though. South America’s $200 million loss last quarter was only a portion of the $678 million that arm last in 2018.

In Europe, Q4’s operating loss of nearly $200 million pushed that arm’s 2018 loss to a total of $398 million. Even in the Middle East and Africa, where Ford had been at least modestly profitable through the third quarter, slipped into the red in 2018 after losing $49 million last quarter.

Looking Ahead for Ford Stock

Management isn’t unaware of the company’s troubles. CFO Bob Shank commented on the Q4 report: “It was not a year we were happy with and the fourth quarter continued that theme.”

CEO Jim Hackett said, “Certainly, it was a challenging year, in that we were hit by some headwinds outside of our control and, frankly, poor performance in some parts of the business,” then added “which we have now taken action to address.”

It remains to be seen how well those challenges have been addressed and how quickly the fixes will make an impact. But, the market is viewing the glass as half-full when it doesn’t have to.

Despite the mixed message of Q4’s numbers, a distinct lack of 2019 guidance from the company and analyst outlooks that don’t imply any growth is in the cards for 2019, Ford stock jumped more than 3% on Thursday.

Rival General Motors Company (NYSE:GM) will post its fourth quarter results in early February, shedding some more light on the nature of Ford’s challenges.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.

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