Categories Analysis, Earnings, Industrials

Ford Motor (F) Q1 earnings call highlights: Cash crunch likely to derail recovery plan

The automobile industry, one of the worst affected by the pandemic, has been witnessing a high level of pessimism ever since the market turmoil derailed production and delivery activities. Most automakers are staring at a bleak future and the sentiment often reflects in their business outlook. Ford Motor Company (NYSE: F), the iconic car manufacturer, disappointed the market this week by forecasting a huge loss for the June-quarter.

Check Ford’s Q1 2020 Earnings Infographic

It is not surprising that auto companies are at the receiving end of the crisis, due to halted production and nil sales. Since Ford has released results before others, the report gives a sense of what is in store for the sector in the coming days. While the management termed the current slump as “too ambiguous” to provide full-year guidance, it expects to incur an operating loss of $5 billion in the second quarter.

Revival Plan

According to CEO Jim Hackett, the first priority is to weather the pandemic storm and come out of it with minimum damage, with focus on protecting the core business and strengthening the balance sheet. He said the measures required to boost liquidity were taken before the end of the first quarter.

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Meanwhile, efforts are on to restart manufacturing activities in Europe in the first week of May, by providing the employees enhanced protection, and to ramp up production gradually in the coming months as normalcy returns to the market. The business is expected to get back on track rather quickly in China, a key market for Ford, considering the rapid progress the country has achieved in tackling Covid-19.

New Launches

Despite the volatility, the management plans to go ahead with the launch of 30 exclusive Ford and Lincoln vehicles in China. But there will be shift in timing, including that of the redesigned F-150 with a hybrid electric version. Meanwhile, the company has decided the delay the launch of its ambitious autonomous-vehicle services by a year.

“Part of skillfully managing through this crisis, is having a well thought out protocol though for back-to-work. We did this for China and I’m pleased that earlier today we announced we will restart our European manufacturing production with enhanced employee protection protocols in place, taking a phased approach starting on May 4.”

Jim Hackett, CEO of Ford Motor

Data shows the Detroit-based automaker could face a liquidity crisis in the coming months, after registering negative cash flow of $2.2 billion in the first quarter. It needs to be seen to what extent the cost-reduction efforts and last week’s historic $8-billion public offering would help in the long run.

The company, which went through a comprehensive reorganization last year, announced another round of restructuring this month in view of the changed scenario. Last month, the management withdrew the full-year 2020 guidance it issued a month earlier, considering the unpredictable market conditions.

Q1 Outcome

In the first three months of the year, Ford sold 516,330 vehicles in the U.S, which represents a 13% year-over-year decrease. Revenues declined in double digits across all markets where the company operates. Consequently, it slipped into a loss of $0.23 per share in the first quarter, on an adjusted basis. The bottom-line also fell short of expectations.

Stock Performance

The dismal quarterly numbers triggered a stock selloff. Ford’s shares lost heavily this week and continued the downturn since then, paring most of the recent gains. The stock, which has been on a downward spiral for the past several years, plunged to a historic low this year. The company’s market value nearly halved since the beginning of 2020.

Rival auto manufacturer General Motors (GM) is scheduled to publish first-quarter results on May 6, before the opening bell.

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