Ford Motor Company (NYSE: F) will report its third-quarter earnings results after the markets close on Oct. 24. Here's what to watch for:
What are Wall Street's expectations?
Wall Street analysts polled by Thomson Reuters expect Ford to report earnings of $0.30 per share, on average, down from $0.43 in the third quarter of 2017. They also expect Ford's automotive-segment revenue to come in at $33.68 billion, roughly flat from $33.65 billion in the year-ago period.
Ford's F-Series pickups continue to sell well and generate good profits, thanks to high-margin versions like this F-150 Limited. Image source: Ford Motor Company.
How did Ford's sales fare in the third quarter?
Ford does business in over 100 countries, but the U.S., China, and the 20 countries that make up western and central Europe (what Ford refers to as the "Euro 20") together account for the vast majority of its global sales.
- In the U.S., where the overall market declined about 2.2% in the third quarter, Ford's sales fell 3.7% over the same period. Ford's pickups have done well all year, but its sedan sales have dropped sharply. And recently, its SUVs have come under some pressure. Ford is about a year away from all-new versions of the Escape and Explorer, its two best-selling SUVs; sales of the outgoing models might be sluggish until then, unless Ford boosts its incentives.
- For comparison: General Motors' (NYSE: GM) U.S. sales fell 11.1% in the third quarter, Toyota's (NYSE: TM) fell 6.1%, and Fiat Chrysler Automobiles' (NYSE: FCAU) rose 10.2%.
- In China, where Ford is in the midst of a major restructuring, its sales were down 37.2% from a year ago. The ongoing U.S.-China trade war is part of the problem, but Ford's issues run deeper. The company has a slew of new products for China on the way, and it's revamping its dealer-support efforts while cutting costs and streamlining product development, But results might not begin to be visible until later in 2019.
- GM's sales in China declined 14.9% in the third quarter, and Volkswagen's (NASDAQOTH: VWAGY) fell 2.2%.
- In Europe, Ford's sales rose slightly (0.6%) in the third quarter. Like most of its rivals, Ford saw its sales sag in September after strong results in July and August.
- Volkswagen's sales in Europe also rose slightly (0.2%) in the third quarter.
In sum, there were few surprises here. Ford's high-profit F-Series pickups did well, as did its new-last-year full-size SUVs; both will drive good profits in North America. Sales in Europe appear to have remained strong, but Ford's ability to deliver good profits on those European sales is in question after a disappointing (and surprising) second-quarter result. And in China, where Ford barely broke even in the second quarter, it looks likely that results will be disappointing for a while longer.
One known special item: A $140 million recall
Ford announced in September that it had recalled certain F-150 pickups made between 2015 and 2018 to repair defective seat belt pre-tensioners. At the time, it said that it expected the recall to cost about $140 million, which will be reflected in its third-quarter results.
The recall costs didn't affect Ford's earnings guidance for the full year. It still expects its 2018 adjusted earnings per share to come in between $1.30 and $1.50. Ford earned $0.70 per share on that basis in the first two quarters of 2018.
Ford's stock has slumped in 2018, in large part because investors and analysts don't have a clear idea of where CEO Jim Hackett plans to take the company. Hackett, who took over as Ford CEO in May 2017, has explained that Ford needs to improve its "fitness," by which he means its profitability as well as its ability to quickly adapt to changing market conditions. But how will he do it? That's still an open question.
It's clear now that Hackett plans to restructure the company's global business in significant ways. We've seen some bits and pieces of his plan; for instance, Ford's intent to eliminate sedan and hatchback models from its U.S. lineup. During last quarter's earnings call, we learned what this restructuring effort will cost: $11 billion.
And just in the last couple of weeks, we've learned that Ford plans to cut its salaried workforce as part of Hackett's campaign to make $25.5 billion in cost cuts by 2022.
But what will the payoff of all of this be, and when will investors see it? That we don't know. Expect analysts to press Hackett and his senior management team on those points during Ford's earnings call.
The upshot: Will Ford beat expectations?
Will Ford beat Wall Street's profit expectation? That's a tough question. There were hints last quarter that Ford's profit might fall slightly short of expectations, but few expected adjusted earnings per share to fall over 50% from the year-ago period.
I think right now, Ford has a lot to prove. As a shareholder, I certainly hope the company posts a good third-quarter profit, but I'm skeptical. I'm thinking that it might be awhile before Ford is able to surprise us with good news on profits. We'll find out on Oct. 24.
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