What To Expect From Ford’s Third-Quarter Results?

Ford Motors (NYSE: F) will release its third-quarter results on October 24 after the market closes and conduct a conference call with analysts following the release. The market expects the company to report an EPS (Non-GAAP) of $0.28, almost 35% lower than last year, whereas the expectation for revenue stands at $33.5 billion, approximately 1% lower than the figure reported a year ago. The weak demand in China is expected to remain a major setback for the company’s results in the third quarter. However, higher sales volume of SUV’s and pickup trucks in its key US markets could offset the negative impact of China. Additionally, Ford’s overall income is likely to decline due to headwinds from rising raw material costs and tariffs’ impact on raw materials.

We have a $10 price estimate for the company, which is above the current market price. View our interactive dashboard – Our Outlook For Ford in 2018 – and modify the key assumptions to arrive at your own price estimate for the company.

Ford has been struggling to increase volume sales in China since last year as a result of which Ford’s shares have lost almost one-third of its market value over the last few months. Ford’s cumulative 9-month sales in China stood at 585,171 units, which is down by almost 30% y-o-y. The lower sales volume reflects Ford’s inability to provide newer models to the market and the fierce competition from the global and local brands. Although Ford has plans to introduce newer models, these models would not be hitting showrooms until next year. Consequently, the company expects to incur a loss in its Asia Pacific (APAC) region in the third quarter (similar to Q1 and Q2’18), in addition to declining sales and engineering and marketing costs weighing on its results.

Further, the recently imposed trade tariffs have resulted in a two-way cost headwind for the company in terms of exorbitantly higher metal prices in the US and retaliatory import tariffs imposed by Ford’s overseas markets, particularly China.  The US tariffs on aluminum and steel are likely to cost the company roughly $600 million in 2018, which will negatively impact its bottom-line. Ford now projects $1.6 billion of commodity cost impact on its 2018 results, notably higher compared to the guidance of about $1 billion at the beginning of the year.

Additionally, Ford announced an ambitious restructuring plan earlier this year, including phasing out of all its sedans in favor of trucks and SUV’s, slashing costs and refocusing on the production of its best-selling SUVs and other profitable ventures. However, the lack of details on its $11 billion restructuring plans has led to the sell-off of the stock to its 9-year lows. Further, the company’s plans to trim around 70,000 salaried personnel by Q2’19 as part of restructuring program have further pulled down its stock price.

Thus, Ford’s performance is in a quandary. Weaker performance in China and Europe are expected to drag profits lower in the second half of 2018. Rising commodity costs, tariffs’ impact, and lack of clarity in its restructuring plan are likely to weigh on the margins of the company in 2018. The only ray of hope for Ford is the marginal rise in its North-American SUV and truck sales. Based on the aforementioned factors, Ford had consequently lowered its full-year 2018 EPS outlook by around 11% (assuming mid-points) and now expects it to range between $1.30 – $1.50 per share.

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