Ford projects $2 billion net income loss in Q1, heads to debt markets to raise cash
Ford Motor Co. expects to post a $2 billion net income loss for the first quarter, the latest indication that the ongoing production shutdown is battering automakers' bottom line. And the company announced a debt offering in a bid to raise another $8 billion in cash.
The Dearborn automaker had alluded to such a move earlier this week when it said it was considering "additional financing actions" to shore up its balance sheet amid the coronavirus pandemic hammering economies around the world.
In a filing with the Securities and Exchange Commission, Ford reported it expects first quarter revenue of approximately $34 billion. And in another measure of the financial impact of the shutdown, Ford said Monday that it expected to post a $600 million adjusted pre-tax earnings loss for the quarter. These numbers are preliminary; Ford will release first quarter earnings April 28.
The automaker had previously withdrawn all guidance for 2020 and suspended its dividend. In a statement Monday, the automaker said it had enough cash on hand to weather the third quarter, at least, even without restarting production.
As of April 9, the company had about $30 billion in cash on hand, including $15.4 billion borrowed in March against two existing credit lines. But, chief financial officer Tim Stone said, the company was "(assessing) all funding options to further strengthen our balance sheet and increase liquidity to optimize our financial flexibility."
That's essentially what Friday's bond offering aims to do. The note offerings are in three separate pieces totaling $8 billion. The first, with an 8.5% interest rate, comes due in 2023. The second, with a 9% interest rate, is due in 2025. And the third, with a 9.625 interest rate, matures in 2030.
Neither the bleak financial projections nor the debt offering comes as a surprise to industry experts
"All of the automakers are bleeding through (their cash) fast right now, with production being down. It makes sense that they're going to go to the debt markets," said David Kudla, CEO and chief investment strategist at Grand Blanc-based investment advisory firm Mainstay Capital Management LLC. "Shoring up the balance sheet, having that cash available, with uncertainty (about when the economy will reopen), just makes sense."
"COVID-19 is an external shock to the system," said Stephanie Brinley, principal automotive analyst at IHS Markit. "It has affected both the supply and demand sides to the industry. As a result of the broad scope of this, it’ll be a rough quarter for the entire industry. This is one of the first early statements. There is more to come on what was a difficult quarter, what will be a difficult half of the year and a difficult full year.”
Kudla said he expects to see many companies looking to raise cash by issuing bonds. Brinley noted that Ford, General Motors Co. and Fiat Chrysler Automobiles NV have all taken steps to cut costs.
An IHS Markit global survey of automakers and suppliers found that the average reduction to development and advanced research budgets for the year was 13% and 17%, respectively, with more reductions to come in 2021.
“We can expect to see more cost cutting efforts throughout the year and even into 2021,” Brinley said. “If you’re taking in less money than you expected, you fundamentally have to spend less money.”
Programs may be delayed, trimmed or even cancelled altogether. The debut of Ford’s Bronco off-road SUV is on hold. General Motors Co. has deferred mid-cycle refreshes for its light-duty pickups and a couple of SUVs until next calendar year. Fiat Chrysler Automobiles NV said this week it expects delays to its product programs because of the effects of the outbreak.
“Each automaker is going to have to work through this and decide how it affects their end strategy and where they are in the marketplace," Brinley said. "This is one that will be felt in the products for the next couple of years."
Ford said Monday it was "considering a scenario" for a phased restart of auto production sometime this quarter. That could happen as early as next month, with elected officials, including Gov. Gretchen Whitmer, saying they are taking steps to prepare for a gradual reopening of the economy at the start of May.
In its SEC filing, Ford outlined some of the uncertainty and challenges surrounding plans to restart, including the time it will take to ramp up production, whether suppliers and dealers are able to resume business, the status of government stimulus programs for businesses and consumers that touch the auto industry, and disruptions to supply and distribution chains.
"Accordingly, the ultimate impact on our financial conditions and results of operations cannot be determined at this time," the automaker said. "Nevertheless, despite the uncertainty of the COVID-19 situation, we expect our full year 2020 results to be adversely affected."
Additionally, Ford reported that the South Carolina production facility of a supplier, BorgWarner Inc., was damaged this week by a tornado. The automaker said it could not yet estimate when the plant will be back online or how it will impact plans to restart production.
Staff writer Breana Noble contributed to this story.