Ford's profits fall nearly 99% for year, due to Explorer woes
Dearborn — The botched introduction of the new Explorer SUV caused what CEO Jim Hackett said would be Ford Motor Co.'s "year of execution" to fall flat, with the Dearborn automaker posting a net income of just $47 million last year — a 99% decline from 2018.
Hackett had hailed 2019 to be a turning point "toward a really bright future" as Ford undergoes an $11 billion global restructuring, which included cutting costs and layoffs. But the 117-year-old company's flubbed launch of its best-selling SUV plagued the latter half of the year and sent SUV sales down 5%.
"We fell short of our financial expectations and yours in 2019," Hackett said on an earnings conference call Tuesday. "What is particularly disappointing is the primary reason for that shortfall was our operational execution. This is an area where we typically are effective.
"Our leadership is determined to return to world-class levels of operational execution. We will do that without losing any momentum in creating a Ford Motor Company that will drive and generate long-term value in these fast-changing times."
Ford's $6.379 billion in earnings before interest and taxes missed the lowered guidance the automaker set last quarter of between $6.5 billion and $7 billion. Its expectations for 2020 are even lower: between $5.6 billion and $6.6 billion — and that doesn't include potential losses related to the coronavirus outbreak in China.
The company's shares in post-market trading slid more than 9%, losing gains made over the past year as major indexes closed higher. The sell-off, coming as rivals General Motors Co. and Fiat Chrysler Automobiles NV are set to detail their results this week, signals growing concern about the pace of Ford's turnaround, its European restructuring, efforts to repair its business in China and its troubled Explorer launch.
"Given the economy Ford was handed in 2019, the operational miscues resulted in missed opportunities to the bottom line," David Kudla, chief investment strategist of Grand Blanc-based Mainstay Capital Management LLC, said in a statement ahead of the earnings results.
The Explorer was the most complicated launch for Ford since the aluminum F-150 pickup in 2015, said Tim Stone, chief financial officer. The rush to production led to months-long delays and SUVs coming off the lines with such major problems as faulty seats, loose wiring harnesses and digital displays with buggy software. It delivered 26% fewer Explorers in 2019.
Ford will have the chance to prove it corrected its mistake in 2020 with launches of a new off-road SUV and the all-electric Ford Mustang Mach-E SUV. It also is investing $700 million in Dearborn for the next-generation, F-150 pickup, including a plug-in hybrid version, and $750 million to Michigan Assembly Plant in Wayne for the returned Bronco SUV in 2021 and the Ranger pickup. By the end of the year, Ford is expected to have replaced 75% of its product line since 2017 and decrease its average age by two years to 3.3 years old.
The Dearborn automaker reported it made 1 cent per share on $155.9 billion in revenue for the year, a 3% decrease. Ford lost $1.672 billion in the last three months of 2019, which was 13 times the company's loss for the same period last year. A $2.2 billion charge on pensions largely drove the fourth-quarter loss.
"From an execution standpoint, clearly 2019 was below our expectations attributable to the operational challenges we had with the Explorer, for example, higher warranty costs," Stone said. "Fundamentally what we are seeing in our results are the benefits of fitness and the redesign through 2024."
Stone pointed to decreased structural costs in 2019 compared to flat structural costs in 2018 as an example of this, but Ford did not disclose further details on them. Operating costs fell 1% to $155 billion.
The automaker made $6.612 billion before interest and taxes in North America, a decrease of 13%. Ford will give eligible hourly full-time United Auto Workers employees up to $6,600 profit-sharing checks this year, down $1,000 from a year ago.
The automaker's North American business was operating at a 6.7% margin in 2019, down from 7.9% in 2018. The teams are targeting 10% margins. In 2019, Ford lost before interest and taxes $704 million in South America, $47 million in Europe, $23 million in Asia Pacific and $142 million in the Middle East and Africa. The company also lost $771 million in China.
Although the Chinese market contracted, Ford's earnings rose 50% year-over-year as it introduces newer models such as the Ford Territory crossover, remodeled Ford Focus car and Lincoln Aviator SUV. The new Ford Escape SUV and Lincoln Corsair will launch this year there.
The coronavirus outbreak, however, has the company extending the Chinese New Year holiday factory shutdown a week to Feb. 9 under the government's recommendation. It is not yet clear how much it will affect business, Stone said. Ford also is halfway through its planned 12,000 layoffs in Europe, where it closed six manufacturing facilities last year.
The company lost $1.186 billion in the "mobility segment" in 2019 and plans to increase its spending on the development of future technology in 2020. Ford Credit made $2.998 billion with Ford projecting earnings would decrease again this year because of auction values and higher taxes.
Ford had just under $1 billion more cash on hand at the end of 2019 with $17.7 billion. The company's operating income was $574 million.
Since the start of 2019, Ford has announced partnerships with Volkswagen AG and India's Mahindra Group to boost performance outside the U.S. Ford also announced plans to develop an electric vehicle for Lincoln with Plymouth-based Rivian Automotive LLC and expand autonomous vehicle testing with Argo AI.