Ford shares tumble as market reacts to lowered earnings guidance

Ford Motor Co. shares fell nearly 7% Thursday as Wall Street reacted to the automaker's lowered guidance for 2019, yet one more headwind in the Blue Oval's years-long reinvention under CEO Jim Hackett.

The downshift comes after the automaker started the year with better-than-expected earnings, a freshening lineup skewed more heavily to profit-rich pickups and SUVs, and drive from the top to show progress this year amid an $11 billion global restructuring.

It's not quite working out that way. Ford showed improvement in some areas, but it still is losing money in every other region of the world, and its business in China — the world's No. 1 market — continues to struggle amid a soft economy and signs that Ford's lineup there is not yet properly attuned to Chinese tastes. And now the automaker expects higher warranty and incentive spending to cut into its bottom line as investors look for more evidence Ford's turnaround is gaining traction.

"While we still believe Ford has a large potential from fixing its international operations, the benefit from its $7 billion restructuring program will likely take longer to materialize than previously expected, and could be more than offset next year by large costs from launches in the U.S.," wrote Deutsche Bank research analyst Emmanuel Rosner in a note to investors. "And with no real inflection point expected in free cash flow before 2021, we also worry about Ford’s preparedness for an eventual U.S. industry downturn, and the impact it could have on its balance sheet."

The automaker on Wednesday reported third-quarter results Wednesday that beat analyst expectations, but Hackett also told investors the automaker would not grow earnings in 2019 as previously expected. Full-year results could come in, at best, no higher than they did in 2018 despite cuts to the global workforce and realignments the automaker made in Europe, South America and China. 

"Of course, we are disappointed in this," Hackett said in a call with investors. "But we are confident that we are laying the groundwork for sustained improvement in profitability and cash flow over time."

Ford expects higher warranty costs, spending on incentives, and lower sales volumes in China to cut too deeply into profits for the automaker to improve its bottom line compared to 2018 — the year Hackett told employees to bury "in a deep grave" at the start of the year.

The Dearborn automaker said it expects to make between $6.5 billion and $7 billion in 2019, potentially lower than the $7 billion in profits before taxes the automaker made in 2018. At the beginning of the year, the automaker forecast it would beat 2018's results.

But Morgan Stanley investment analyst Adam Jonas, a frequent critic of Ford who has clashed publicly with Hackett, said in a note "the reduction in guidance isn't entirely a surprise given recent problems" with the launch of the Explorer and its mate, the Lincoln Aviator.

"We would categorize fundamental performance for Ford in 2019 to be somewhat inconsistent due mainly to execution and continued challenges to turn around struggling international operations," he added.

Ford struggled to ramp production at its recently renovated Chicago Assembly plant, where it spent $1 billion and took 30 days earlier this year to retool the plant to build the all-new rear-wheel-drive Explorer and Aviator. But the launch took longer than expected to reach the rate of production Ford needs for one of its most profitable plants.

"We launched the Aviator and Explorer both at the same time," Ford President of Automotive Joe Hinrichs told investors. "We had the higher version of Explorer. We had the Police Interceptor. We had Black Label Aviators. We had all this content and, simply put, with ... the product going from front-wheel drive to rear-wheel architecture, all new assembly line, all new body shop, all those things at once we took on too much and we shouldn’t have it."

With Explorer production lagging, the automaker missed out on about 19,000 vehicle sales in the third quarter. That was offset slightly by the roughly 6,000 Lincoln Aviators moved in the quarter, which were not a part of the lineup a year ago.

But Hinrichs said Ford is running the Chicago plant at about 59 "jobs per hour," which translates to roughly a vehicle a minute when the plant is operating. That plant, one of the Blue Oval's oldest production sites in the United States, shouldn't be an issue in the fourth quarter, officials said.

"Simply put, we took on too much," Hinrichs said. "We signed up for too much at launch. (But) we actually feel really good about where we are right now. It’s been a lot of work and a lot to get here."

ithibodeau@detroitnews.com

Twitter: @Ian_Thibodeau