01—Abstract
Summary
Summary of the 10-K filed February 8, 2018. Cited figures are marked; the original filing is the authoritative source.
Ford Motor Company's 2017 Form 10-K (filed February 8, 2018) shows a year of solid but lower earnings, with net income attributable to Ford of $7.6 billiona, or $1.90 per diluted share, up $3 billion from 2016 mainly because of a much smaller pension and OPEB remeasurement loss and favorable tax planning.
Revenue rose to $156.8 billionb, up about $5 billion, but underlying profitability weakened. Company adjusted pre-tax profit fell $1.9 billion to $8.4 billion, the Automotive segment's pre-tax profit declined $2.2 billion to $7.3 billion on higher commodity costs (mainly steel), adverse currency (especially sterling after Brexit), and negative pricing in China. Automotive operations outside North America posted a loss of $252 million, while North America remained the profit engine at $7.5 billion.
Balance sheet and liquidity are sound. Automotive cash was $26.5 billionc and Automotive liquidity was $37.4 billion against a target of about $30 billion. Ford Credit's managed leverage was 8.0:1, within its 8:1 to 9:1 target, and its pre-tax profit was $2.3 billion.
Total equity rose to $34.9 billiond. Pension underfunding narrowed to $6.6 billion, and the company's global funded plans are now fully funded in aggregate. Unresolved risks include Brazilian tax assessments, a Customs dispute over Transit Connect duties, and the EPA and CARB regulatory outlook for 2022-2025 fuel economy and GHG standards.
For 2018, management guided to adjusted EPS of $1.45 to $1.70, flat-to-modestly-higher revenue, lower Automotive profit, a higher Mobility loss from autonomous vehicle investment, and lower Ford Credit profit. Ford also plans to reorganize its reporting into Automotive, Mobility, and Ford Credit segments starting in the first quarter of 2018. Investors should weigh the strong cash position and dividend capacity against margin pressure from commodities, currency, and industry overcapacity.
02—Key points
Key Highlights
- Net income attributable to Ford of $7.6B ($1.90 diluted EPS) in 2017, up $3B from 2016, driven mainly by a much smaller pension/OPEB remeasurement loss and favorable tax planning
- Revenue of $156.8B, up about $5B year over year; Automotive wholesale volume about flat at 6.6 million units
- Company adjusted pre-tax profit fell $1.9B to $8.4B; Automotive segment pre-tax profit down $2.2B to $7.3B on higher steel/commodity costs and adverse exchange, with Brexit effects of about $600M
- Automotive cash of $26.5B and liquidity of $37.4B, both above internal targets; Ford Credit liquidity of $29.5B
- 2018 guidance: adjusted EPS of $1.45 to $1.70, adjusted effective tax rate of about 15%, and lower operating cash flow than in 2017
- Reporting segments will change in Q1 2018 to Automotive, Mobility, and Ford Credit, with Mobility expected to post a larger loss from autonomous vehicle investment
- Total equity rose to $34.9B; pension underfunding narrowed to $6.6B, and global funded pension plans are now fully funded in aggregate
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Ford Motor Co kept $0.05.
- Revenue$156.78B100.0%
- Cost of revenue−$131.32B83.8%
- Gross profit$25.45B16.2%
- Operating costs−$20.57B13.1%
- Operating income$4.88B3.1%
- Interest, other & tax$2.85B1.8%
- Net income$7.73B4.9%
Where FY2017 revenue went
$156.78B- Cost of revenue: $131.32B, 84% of revenue
- Operating income: $4.88B, 3.1% of revenue
- R&D: $8.00B, 5.1% of revenue
- SG&A: $11.53B, 7.4% of revenue
- Other operating costs: $1.05B, 0.7% of revenue
Kept 3.1% as operating incomeOperating income $4.88B · 3.1%Other operating costs $1.05B · 0.7%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 8, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $156.78B$151.80B | +3.3% |
| Cost of Revenue | $131.32B$126.19B | +4.1% |
| Gross Profit | $25.45B$25.61B | −0.6% |
| R&D Expenses | $8.00B$7.30B | +9.6% |
| SG&A Expenses | $11.53B$10.97B | +5.1% |
| Operating Expenses | $151.90B$146.01B | +4.0% |
| Operating Income | $4.88B— | — |
| Interest Expense | $4.36B$894.00M | +388.1% |
| Net Income | $7.73B$4.59B | +68.5% |
| EPS (Basic) | $1.94$1.16 | +67.2% |
| EPS (Diluted) | $1.93$1.15 | +67.8% |
| Shares Outstanding (Basic) | 3.98B3.97B | +0.1% |
| Shares Outstanding (Diluted) | 4.00B4.00B | 0.0% |
05—Questions
Frequently Asked Questions
Why did Ford's net income rise in 2017 even though its core automotive profit fell?
Net income rose to $7.6B from $4.6B in 2016 mainly because 2016 included a roughly $3B pension and OPEB remeasurement loss, which was far smaller in 2017. Favorable tax planning also helped. On an adjusted basis, pre-tax profit declined to $8.4B from $10.4B, as higher commodity costs and adverse currency more than offset gains from mix and pricing in North America.
What are the main risks to Ford's 2018 outlook?
Management highlighted continued commodity and exchange headwinds, potential recall costs (which could push results to the low end of guidance), the possibility of lower U.S. industry volume, and rising interest rates that hurt Ford Credit's financing margin. Regulatory uncertainty around 2022-2025 fuel economy and GHG standards and the pace of electrification investment are also key risks.
Is Ford's balance sheet and liquidity position strong?
Yes. At year-end 2017 Ford held $26.5B of Automotive cash against a target of about $20B and $37.4B of total Automotive liquidity against a target of about $30B. Ford Credit's managed leverage of 8.0:1 sits within its 8:1 to 9:1 target, and its liquidity was $29.5B against a $25B minimum target. Total equity was $34.9B.
What legal or regulatory exposures should investors watch?
Key items include substantial Brazilian federal and state tax assessments tied to Bahia incentives (with possible collateral requirements if appeals go to court), a customs dispute with CBP over Transit Connect duties that Ford won at the Court of International Trade and that is now on appeal, an EPA notice of violation at the Chicago Assembly Plant, and asbestos and product liability litigation. Management said no individual product liability matter is currently material.
06—Continue