Ford Motor Company (NYSE: F) said that it earned $7 billion before taxes and special items in 2018, down substantially from its 2017 result, in a preliminary release of its full-year earnings on Wednesday.
Ford traditionally previews its full-year results and gives guidance for the coming year at an annual investment conference in Detroit in mid-January; it did that on Wednesday morning. While it won't release its full earnings report until next week, we now have a pretty good idea of how Ford performed in 2018.
Ford said that its earnings fell in 2018 because of pressures in Europe and China, and it isn't yet sure how 2019 will play out. Image source: Ford Motor Company.
Ford's preliminary earnings: The raw numbers
Here's what Ford told us on Wednesday about its 2018 full-year earnings.
|Metric||2018 Result||2017 Result|
|Revenue||$160.3 billion||$156.8 billion|
|Adjusted EBIT||$7.0 billion||$9.6 billion|
|Adjusted EBIT margin||4.4%||6.1%|
|Adjusted EBIT margin, North America||7.9%||8%|
|Ford Credit pre-tax earnings||$2.6 billion||$2.3 billion|
|Adjusted operating cash flow||$2.8 billion||$4.2 billion|
|Adjusted earnings per share||$1.30||$1.78|
Data source: Ford Motor Company. "Adjusted" figures exclude the impact of one-time items. Ford's preliminary earnings release indicated that it took $1.43 billion in one-time charges in 2018, much of that in the fourth quarter. "EBIT" is earnings before interest and tax.
Ford is scheduled to release its complete fourth-quarter and full-year earnings report after the market closes on Jan. 23, next Wednesday.
How did Ford do in 2018?
Let's start with this: Ford met its revised 2018 guidance for adjusted earnings per share, but just barely. When it lowered its original guidance in July, Ford said it expected to earn between $1.30 and $1.50 per share on an adjusted basis in 2018, a range it reiterated in October. Its preliminary full-year result fell at the very bottom of that range.
In disclosures that accompanied its presentation, Ford said that its preliminary fourth-quarter adjusted EBIT was $1.46 billion, down from $2.03 billion in the fourth quarter of 2017. But Ford also said that it had a net loss of $116 million in the quarter, down from a profit of $2.52 billion a year ago, because of $1.18 billion in one-time charges. (A Ford spokesperson said that most of that total is due to noncash accounting charges related to the annual revaluation of the assets in Ford's pension plans.)
Ford's expectation for 2019: Uncertainty
Unlike in past years, Ford declined to give specific earnings-per-share guidance for 2019. CFO Bob Shanks said that while Ford's senior management is confident that its ongoing overhaul efforts will yield improvements in time, there are things outside of Ford's control (notably the uncertainties around Brexit) that could affect the timing of those improvements.
Shanks said that Ford sees the potential for improvement in several key metrics in 2019 versus 2018, including revenue growth, adjusted EBIT margin, and return on invested capital (ROIC). He also said that Ford is targeting revenue growth that is greater than the global gross domestic product growth rate, an adjusted EBIT margin of 8% or better, and adjusted ROIC in the "high teens" or better -- but it's not yet clear when all of that will arrive.
Shanks said that Ford may be able to provide more detailed guidance as the year unfolds. But right now, Ford's guidance boils down to this: Good things are coming, but we aren't yet sure if any will arrive in 2019.
For long-suffering Ford investors, that's frustrating to hear. But I think there's some reassurance to be taken from this: Rather than throw out numbers they might not be able to hit, Shanks and other Ford executives are giving us an honest assessment. It's not great news, but it does inspire some confidence.
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