Ford considers production restart, expects $600 million Q1 earnings loss
Ford Motor Co. is “considering a scenario” to restart its manufacturing plants as early as next month even as it expects to post a $600 million adjusted earnings loss for the first quarter. First-quarter financial results are set to be released April 28.
The Dearborn automaker says it has enough cash on hand to make it through at least the third quarter — even without restarting production — but said it is considering “additional financing actions” to shore up its balance sheet. Along with General Motors Co. and Fiat Chrysler Automobiles NV, Ford suspended production March 19 at its plants in the U.S., Canada and Mexico, to help stop the spread of COVID-19, the disease caused by the novel coronavirus.
“We continue to opportunistically assess all funding options to further strengthen our balance sheet and increase liquidity to optimize our financial flexibility,” Tim Stone, Ford’s chief financial officer, said in a statement. “We also are identifying additional operation actions to enhance our cash position.”
The grim earnings forecast was not unexpected. "We know the quarter is going to be dreadful for everyone," said Michelle Krebs, executive analyst at Cox Automotive. "[Ford] putting out preliminary results is probably a smart idea, [because it] stops the speculation."
As of April 9, Ford had about $30 billion in cash on its balance sheet, including $15.4 billion borrowed in March against two of its existing credit lines. Also in March, the automaker suspended its regular quarterly dividend and stock buybacks, a move aimed at preserving cash. It also withdrew all guidance for its 2020 financial performance.
When production does restart, even though changes in consumer behavior may be unknown, it would make sense for Ford to focus on producing reliable moneymakers, such as pick-up trucks and commercial vans, to quickly raise much-needed cash, Krebs said.
Financial results for the first quarter are not yet finalized. But as of Monday, Ford said it expected to report revenue of about $34 billion and an adjusted earnings loss, before interest and taxes, of $600 million.
The company is looking at ways to phase in a restart at its manufacturing plants in the second quarter. A restart would come with “enhanced safety standards” for workers, and the decision would be made in cooperation with unions, suppliers and dealers, the automaker said.
A phased-in restart makes sense, Krebs said, because automakers won't be able to simply "flip the switch" and produce at full capacity. Plus, they will have to take into account their inventory levels, how consumer behavior may have shifted amid an economic downturn, and how they can reconfigure plants to keep workers safe.
"I'm assuming they'll bring back maybe one shift, and certainly not up to full production speed. Protocols will have to change," she said. "We've restarted plants when they've been down for a long time, but not because of this kind of situation."