Ford Motor (NYSE:F) is due to report earnings after the market closes Jan. 23, and analysts are wondering just how bad things can get.
Expectations are for 30 cents per share of earnings on $36.96 billion of revenue. Hitting the number should send the stock higher, because those earnings would be twice the company’s 15-cent-per-share quarterly dividend, and the stock is already selling at a super-low 5.5 times trailing-12-month earnings.
But there are growing hints Ford may miss estimates, and possibly by a lot. Worse, some of those hints are coming from Ford itself, which forecast a miss last week and said it couldn’t be confident about 2019 either, thanks to the Trump tariffs and Brexit.
Trouble Ahead for Ford Stock
Ford is known as a U.S. carmaker, but it is also the top-selling brand in England, and a “no-deal” Brexit, which is increasingly likely, could send that economy into a tailspin. Ford has an international supply chain, so tariffs on imported parts are going to hit its U.S. operations and overall profitability. Also, large industrial companies hate uncertainty, and that’s what the current U.S. administration specializes in.
There are even rumors that James Hackett, who was placed in the CEO chair in May 2017, could get the axe. The former Steelcase CEO and University of Michigan athletic director has been unable to complete any big tech deals, and the alliance with Volkswagen (OTCMKTS:VLKAY) announced at last week’s Detroit Auto Show impressed no one.
It’s possible that William Clay Ford, 61, a descendent of founder Henry Ford who personally ran the company from 2001 to 2006, may be forced to take back control to steady the ship.
Hackett announced a major restructuring plan last year, aiming to cut costs in gasoline engines by $14 billion, getting out of cars and investing that money into electrics and hybrids.
The plan wasn’t bad. Rival General Motors (NYSE:GM) has since announced similar plans. Ford is retreating from Europe but staying in China. Like the manager of a losing football team Hackett has called for patience and told investors big surprises are in store for 2019.
The Debt for F Stock?
The problem is he hasn’t been specific enough to calm the skeptics. If it can continue delivering 15 cents per share to shareholders this year, Ford will be yielding 7.18% at current prices, while GM’s yield has fallen to 4%.
The problem is no one believes Hackett can deliver those earnings. Ford is very vulnerable to a recession right now. It lists only $12 billion of long-term debt but it also borrows to help buyers with their purchases, and if you include Ford Motor Credit, the combined debt is over $102 billion. Moody’s has downgraded that debt to near-junk status, raising fears of a dividend cut. Ford has also been fighting overextended dealers in court.
The Bottom Line
Hackett has tried to be transparent about his plans and Ford continues to make a lot of money on its F-Series trucks. The shares traded as low as $7.50 each but have recently bounced back as bargain-hunters have circled it.
At its current price, Ford is worth just $34 billion. That’s less than its expected fourth-quarter sales. Meanwhile, Tesla (NASDAQ:TSLA) has a market cap of $52 billion when it’s expected to have just $21 billion in sales for the year. If the global economy contracts before those trucks’ buyers can pay off their loans — which have longer-and-longer durations as the price of their trucks has risen — the company could collapse.
On the surface Ford is an incredible bargain, but I bought that argument in 2017 and paid for it with a fat loss in 2018. Fool me once shame on me, fool me twice, won’t get fooled again.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.
