Categories Earnings, Industrials

COVID-19 impact to weigh heavily on Ford’s Q1 financial results

Preliminary results had already depicted the weak performance

COVID-19 has shattered all the industries globally and the automobile industry is one among them which suffered a severe blow. When things get settled down, it is expected that the time of the recovery will be a little longer for the automobile industry. In this challenging scenario, automaker Ford Motor (NYSE: F) will be reporting its first-quarter 2020 results tomorrow after the market closes. Apart from the preliminary results announced this month, the company is expected to discuss more on its preparations for the road to recovery.

Preliminary results

Two weeks ago, Ford had predicted to report first-quarter adjusted EBIT of about negative $0.6 billion and revenue of about $34 billion. Vehicle wholesales declined 21% from the first quarter of 2019, hurt by the lower production and demand related to the coronavirus. In March, Ford pulled out all its 2020 predictions that were given during the Q4 earnings announcement. Also, the management suspended its $0.6 billion regular quarterly dividend and share repurchase program last month. The company added that it is lowering costs, reducing capital expenditures and deferring portions of executive salaries to preserve cash.

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Cash burn

As of April 9, the company had about $30 billion in cash on its balance sheet, including $15.4 billion of proceeds from borrowings last month against two existing credit lines. CFO Tim stone stated that the company has enough cash until the end of the third quarter. If returning to normalcy slows down, the cash burn will increase and it will be a headwind for the company.

Ford and other auto giants Toyota Motors and Fiat are having talks with the United Auto Workers (UAW) union for a phased restart of its manufacturing plants, supply network and other dependent functions. However, with the increase in COVID-19 cases, the union is yet to take a decision on this.

Ford Motor (F) Q1 2020 earnings preview - US sales trend

Sales by geography

Early this month, Ford reported US sales results. Total sales fell 12.5%, amid the outbreak of the coronavirus and stay-at-home orders. In Greater China, Ford and Lincoln dealerships resumed operations in March. However, due to the unprecedented slowdown caused by the COVID-19 in the region, the company registered a 35% year-over-year decline in sales. Geographically, sales in the other regions are also expected to be down year-over-year like last quarter.

Looking back

When Ford Motor reported its fourth-quarter 2019 results in early February, it had projected first-quarter 2020 adjusted EPS to range between $0.94 and $1.20. And for 2020, CFO Tim Stone said:

At a macro level, our guidance reflects our expectation for continued GDP growth globally and across our major markets. We also anticipate healthy industry volumes on an absolute basis, but down modestly from 2019, including declines in the US, Europe and China. This outlook does not factor in any assumptions for impacts from the Coronavirus to our global business, as it is still a very fluid situation, and we’re still assessing the magnitude and duration of potential impacts.

Since the Coronavirus contagion was in early stages during early February, Ford said that it will take weeks to begin to understand the implications of the outbreak.

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The global uncertain macro environment raised out of the pandemic and the financial turmoil caused by the growth in unemployment and lower pay have resulted in decreased demand in the automobile industry. Apart from the aforementioned headwinds, the uncertainty in the recovery is also expected to hurt Ford throughout this year and in 2021 also. Analysts predict the Dearborn, Michigan-based company to post a loss of 12 cents per share on revenue of $32.54 billion for the first quarter of 2020. This compares with adjusted earnings of $0.44 per share and revenue of $40.3 billion in the first quarter of 2019.

After 2009, Ford stock nosedived to below $4 mark last month-end. The company’s shares, which closed down 0.41% at $4.81 on Friday, have dropped 48% since the beginning of 2020.

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