Ford Motor Co. reports $2.4 billion net income in third quarter

©Detroit Free Press

The 2021 Ford F-150 drives up during a news conference at the Dearborn Truck Plant in September 2020. - Eric Seals/Detroit Free Press/TNS

DETROIT — Ford Motor Co., fresh with new leadership and touting an upcoming lineup of hot new vehicles, reported a $2.4 billion net income Wednesday for the third quarter of the year, an improvement of $2.0 billion from the same quarter last year.

Ford reported that earnings in the quarter before interest and taxes — adjusted EBIT — was $3.6 billion, up from the $1.8 billion reported for the same period in 2019 and $1.7 billion a year earlier. EBIT does not include restructuring and other charges.

“We plan to compete like a challenger,” CFO John Lawler said on a media call.

From the factory floor to Wall Street, people have noticed Ford is under new management and they seem to be pretty happy about it.

CEO Jim Farley and Lawler, who started as a team on Oct. 1, have restored confidence in the 117-year-old company among industry observers as well as UAW members and car dealers.

“Morale has increased immensely since Jim (Farley) has taken the spot,” Craig Felt, who works in machine repair at the Ford Romeo Engine Plant, told the Free Press.

Stock activity, which has been tepid, is showing signs of life. The up-and-down stock had seen a 52-week low of $3.96. It closed Wednesday at nearly twice that amount.

Industry analysts and factory workers say the straight-talking Farley, who started with Toyota, will bring a refreshing change from former CEO Jim Hackett’s more esoteric dialogue.

Ford has a lot at stake, and third quarter earnings reflect the significant costs associated with the upcoming launches of the all-new 2021 Ford F-150, the redesigned Ford Bronco and Bronco Sport, and all-electric Mustang Mach-E.

Lawler wrote these key takeways from the earnings report:

— “Better execution … and restructuring are paying off.”

— “Stronger-than-expected demand.”

— “There’s more to fix, and we’re carrying out a clear plan to do that.”

Ford ends the quarter with $30 billion in cash on hand and more than $45 billion in liquidity.

A year ago, Ford had $22 billion in cash on hand and $35 billion in liquidity.

Ford Credit saw earnings of $1.1 billion, compared to $0.7 billion in 2019.

For the first three quarters of the year, Ford’s net income of $1.5 billion is down from the $1.7 billion through the first three quarters of 2019.

And third quarter revenue was $38 billion compared with $37 billion in 2019.

Earnings per share of 65 cents beat expectations of 20 cents.

The company raised its guidance for full-year EBIT, estimating 2020 earnings at between $0.6 billion-$1.1 billion from previous guidance of an EBIT loss.

“We’re going to continue to focus on reducing costs,” Lawler said.

Meanwhile, FCA reported a $1.4 billion third quarter net profit on Wednesday.

Hopeful future

In mid-October, Benchmark analyst Michael Ward wrote shareholders that he felt optimistic and recommended people buy Ford stock.

“A new management team and better-than-expected third-quarter earnings provide a near-term catalyst for Ford,” Ward said. “Momentum from new products and the need to replenish depleted inventories of full-sized pickup trucks should accelerate the momentum into 2021.”

In addition, Ford saw its labor contract with Unifor in Canada not just ratified but touted as a major investment partnership with the Canadian government.

Challenges remain.

Jeff Windau, industrials analyst for Edward Jones, wrote Oct. 5 that Ford has financial flexibility to weather industry changes but the recent credit downgrade to noninvestment grade means borrowing money could cost more and affect the company’s ability to invest in its manufacturing.

In addition, Ford has delayed production of its new plug-in hybrid Escape until 2021 after SUVs that use the same battery cells were recalled in Europe because several caught fire, CNN Europe reported. There’s a problem related to venting heat from the batteries.

The battery situation is to blame for unexpected costs in Europe this quarter, Lawler said. “We would’ve been profitable in Europe if not for the issue.”

Overall, Ford has come through the coronavirus pandemic without notable disruption and forecasts product launches without disruption, a top priority for Farley.

“We’re making every effort to keep COVID out of our facilities,” Lawler said, noting that the rising number of cases in states with production operations is a concern.

‘Even if it hurts’

The replacement of Hackett, who held the job for three years, is a net positive for workers, said Todd Dunn, president of UAW Local 862, which represents workers at the Kentucky Truck Plant who build the Super Duty, Ford Expedition and Lincoln Navigator — as well as workers at the Louisville Assembly Plant making the Ford Escape and Lincoln Corsair.

“Under Hackett’s leadership, there just wasn’t a whole lot of discussion about our company as a whole — building cars and trucks,” Dunn said.

With Farley and John Savona, vice president of North American manufacturing, UAW leaders see seasoned executives who understand intimately the challenges of the operation. And that’s good for profits, products, customers and workers, Dunn said.

“We can take our hat off, talk frank to one another, even if it hurts,” Dunn said. “We can talk real business, whether it’s something going on in the plant or the direction of the company or things that need to be dealt with. Having car people come up through the ranks, as part of the solution not part of the problem, is why we feel more comfortable with Farley than Hackett. With him, there was not a lot of car talk.”

Too often, auto industry people were characterized as the problem while tech executives were praised almost exclusively as the solution, UAW workers said.

Morale is “huge” when it comes to production; when workers feel valued, it affects performance and the bottom line, Dunn said.

Meanwhile, Hackett, who retired as CEO of Steelcase Furniture before his stint at Ford, will remain on the payroll as a consultant until March. It’s not an unusual arrangement but noted by workers who see job cuts on the horizon.

Ford executives have said they need to tighten up costs and improve profits. Workers say the tone and approach of the CEO makes a difference.

North American ATM

The stock closed at $7.70 on Wednesday.

As usual, North America led the way with $3.2 billion in third quarter earnings before interest and taxes — a 58% increase from the same period in 2019 — and Ford saw its European earnings before interest and taxes go from a loss of $179 million to a loss of $440 million compared with the same quarter in 2019. The company had a 79% improvement in China, although the company still saw a loss there of $58 million.

At least one investor warned that Ford needed to focus on quality control.

Market analyst Jon Gabrielsen said he does not envy Farley’s situation.

“The challenges Jim Farley faces are huge,” he said “While Ford has some very exciting new products coming out, their perennial financial losses in every region except North America and high level of debt are very concerning, and the downturn in the economy and the auto industry driven by COVID-19 rising has just begun. It will take everything that Farley has in order to turn Ford around.”

It is essential that Farley have full support from the Ford family to take drastic measures as needed, Gabrielsen said. “Hopefully the family will afford Farley the freedom to do absolutely whatever it takes in order for Ford to recover.”

Big ticket items

Ford saw its average transaction price (ATP) jump 8% to $45,891, driven by trucks and SUVs in North America, according to Cox Automotive. It is the highest ATP for any third quarter in the past five years at Ford.

Overall highlights from the report include:

— Ford and Lincoln brand vehicles dipped only 5% to 549,084 vehicles, outperforming the industry, which had a 10% sales drop. As a result, Ford’s total market share climbed to 14.9% from 14.69% in third quarter 2019.

— Ford brand sales dropped 5% to 521,530 vehicles. The Ford Explorer saw sales jump 74% to nearly 60,000 vehicles. Sales of the Escape and Edge took a nosedive. F-Series pickup trucks saw sales climb nearly 4% to 221,647 vehicles. Ranger pickup sales went up 8%, and Expedition grew 4%.

— Lincoln sales fell 1% to 27,554 vehicles for its second best third quarter in five years. The Aviator had 6,118 sales, up from fewer than 2,000 in 2019. The Corsair saw an 8% increase.

F-Series continues to be a moneymaker with an average transaction price at a five-year high of $53,251.

Jessica Caldwell, executive director of insights at Edmunds said 2020 continues to deliver surprises with steady new vehicle sales.

“The decline in cars and ongoing demand for trucks during the pandemic inevitably increased profitability per vehicle sold for Ford,” she said, noting that its average transaction prices saw the biggest spike among the Detroit 3.

“Between its new CEO, the newly launched Bronco and the highly anticipated F-150 launch on the horizon, it seems that Ford is riding a wave of positive momentum that should carry the company through the end of a wild year,” Caldwell said.

———

©2020 Detroit Free Press