Detroit auto maker and iconic American manufacturer Ford Motor’s first-quarter earnings missed Wall Street estimates. But that actually isn’t the bad news: Results in the second quarter are about to get far worse because of Covid-19.
Ford (ticker: F) reported a per-share loss of 23 cents and $34.3 billion in sales. Sales in the first quarter of 2019 tallied $40.3 billion. Wall Street had predicted a loss of 6 cents a share.
The miss isn’t the most surprising part. Ford earnings estimates, like those for most auto companies, have been coming down recently. Analyst estimates for Ford’s first-quarter earnings were 36 cents a share just three months ago.
Second-quarter guidance is what is most shocking: Ford expects to lose about $5 billion on an operating basis for the quarter ending in June.
Everyone knows things are tough for car companies as the coronavirus pandemic continues. No one is making cars, and few U.S. consumers are buying them. But the $5 billion loss is about twice as large as analysts expected only a few days ago.
Ford shares are down about 4.5% in premarket trading Wednesday. The losses aren’t larger because shares have already been hammered. Year to date, Ford shares are down about 47% year to date, far worse than the double-digit drops of the S&P 500 and Dow Jones Industrial Average.
The entire automotive universe has been hammered by the Covid-19 outbreak. Traditional auto maker stocks, including Ford, are down about 45% on average. Parts suppliers are off about 40% on average. Dealers are down about an average 36% year to date. Auto-heavy lenders are down almost 50%, and after market-related stocks are off about 25%. Hundreds of billions of dollars of market value has been wiped out.
Ford, for now, is focused on its balance sheet and maintaining ample liquidity. During the quarter, Ford borrowed $15 billion from existing credit facilities and raised another $8 billion in bond sales. Management says Ford and Ford Credit have $35.1 billion and $28 billion in liquidity, respectively.
Don’t forget Ford, like other auto makers, has a large lending arm, making simple comparisons of net debt to operating earnings more difficult. Ford’s credit arm increased reserves for future loan losses, mirroring what large U.S. banks did when reporting first-quarter numbers.
“We’ve taken decisive actions to lower our costs and capital expenditures and been opportunistic in strengthening our balance sheet and optimizing our financial flexibility,” said Ford CFO Tim Stone in the company’s news release. “We believe the company’s cash is sufficient to take us through the end of the year, even with no additional vehicle wholesales or financing actions.”
Enough cash through year-end is a bit of good news for investors.
Looking ahead, U.S. auto makers have to think about bringing production back on line. Most global auto makers stopped making cars in mid-March to help flatten the Covid-19 new infection curve. Exactly how capacity will come back isn’t known. Work flows and plants layouts might be modified to limit the risk of a coronavirus outbreak in a car plant.
“Part of skillfully managing through this crisis is having a well thought-out protocol for back to work,” said CEO Jim Hackett on the company’s earnings conference call. “And we did this for China, and I’m pleased that earlier today, we announced we’ll restart our European manufacturing production with enhanced employee protection protocols in place.”
China is running at close to 90% of capacity, according to Hackett. Ford surveyed its supply base there to make sure it could support production and modified shift patterns in plants to minimize the change of widespread infection. Those are steps it plans to “export” to the U.S.
Ford stock closed up 4.1% in Tuesday trading, better than the 0.5% decline of the S&P.