01—Abstract
Summary
Summary of the 10-K filed February 21, 2019. Cited figures are marked; the original filing is the authoritative source.
Ford Motor Company's 2018 Form 10-K shows a year of sharply lower profitability despite record-level revenue.
Total revenues grew 2% to $160.3 billiona, but net income attributable to Ford fell to $3.7 billion ($0.92 diluted EPS) from $7.7 billion, and Company adjusted EBIT declined $2.6 billion to $7.0 billion (adjusted EPS $1.30). Management attributes the decline mainly to lower Automotive EBIT, driven by China and Europe, commodity and currency headwinds (about $3.3 billion in identified headwinds, including about $750 million in tariff effects and about $775 million of Takata recall costs), a larger pension and OPEB remeasurement loss from late-2018 market conditions, and personnel separation actions. North America remained the profit engine, while Mobility (autonomous vehicles) and Corporate Other remained loss-making.
Balance sheet and liquidity remain solid. Company cash stood at $23.1 billionb against a $20 billion target, and Company liquidity was $34.2 billion. Company debt excluding Ford Credit was $14.1 billion, with adjusted debt to EBITDA at 3.2:1.
Capital spending was $7.7 billionc, and shareholder distributions were about $3.1 billion. Ford Credit delivered its best EBT in eight years at $2.6 billion, though its managed leverage of 8.8:1 is within its target range. Cash conversion was weak, with adjusted cash conversion at 40%, and operating cash flow fell to $15.0 billion from $18.1 billion.
Management's 2019 outlook calls for modest improvement: revenue above $160.3 billiond, adjusted EBIT margin above 4.4%, and adjusted ROIC above 7.1%. Risks flagged include a possible hard Brexit (estimated $500 million to $1 billion cost), tariffs, excess global capacity (about 42 million units), tightening emissions and fuel economy rules, a voluntary disclosure to the EPA about U.S. emissions certification, and a European competition fine of about $50 million at FCE Bank. Investors should weigh these against the company's ongoing fitness redesign, a Volkswagen alliance for commercial vans, and the planned exit from South American heavy trucks, which carries about $460 million in pre-tax charges.
02—Key points
Key Highlights
- Revenue rose 2% to a record $160.3 billion, but net income attributable to Ford fell 52% to $3.7 billion ($0.92 diluted EPS).
- Company adjusted EBIT fell $2.6 billion to $7.0 billion, with margin down 1.7 points to 4.4%, driven mainly by China and Europe.
- Identified 2018 headwinds totaled about $3.3 billion, including tariffs (~$750M), commodities (~$1.1B), unfavorable exchange net of pricing (~$750M), and Takata recall costs (~$775M).
- Ford Credit earned $2.6 billion in EBT, its best result in eight years, while Mobility posted a $674 million pre-tax loss.
- Liquidity remains strong: $23.1 billion of Company cash (target at least $20 billion) and $34.2 billion of total Company liquidity.
- Operating cash flow dropped to $15.0 billion from $18.1 billion, and adjusted cash conversion was only 40%.
- 2019 guidance calls for modest improvement in revenue, adjusted EBIT margin, and ROIC, but flags a hard Brexit cost of $500 million to $1 billion and an announced exit from South American heavy trucks with about $460 million in charges.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Ford Motor Co kept $0.02.
- Revenue$160.34B100.0%
- Cost of revenue−$136.27B85.0%
- Gross profit$24.07B15.0%
- Operating costs−$20.87B13.0%
- Operating income$3.20B2.0%
- Interest, other & tax$474.0M0.3%
- Net income$3.68B2.3%
Where FY2018 revenue went
$160.34B- Cost of revenue: $136.27B, 85% of revenue
- Operating income: $3.20B, 2.0% of revenue
- R&D: $8.20B, 5.1% of revenue
- SG&A: $11.40B, 7.1% of revenue
- Other operating costs: $1.26B, 0.8% of revenue
Kept 2.0% as operating incomeOperating income $3.20B · 2.0%Other operating costs $1.26B · 0.8%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 21, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $160.34B$156.78B | +2.3% |
| Cost of Revenue | $136.27B$131.32B | +3.8% |
| Gross Profit | $24.07B$25.45B | −5.4% |
| R&D Expenses | $8.20B$8.00B | +2.5% |
| SG&A Expenses | $11.40B$11.53B | −1.1% |
| Operating Expenses | $157.13B$151.90B | +3.4% |
| Operating Income | $3.20B$4.88B | −34.4% |
| Interest Expense | $5.16B$4.36B | +18.2% |
| Net Income | $3.68B$7.73B | −52.4% |
| EPS (Basic) | $0.93$1.94 | −52.1% |
| EPS (Diluted) | $0.92$1.93 | −52.3% |
| Shares Outstanding (Basic) | 3.97B3.98B | 0.0% |
| Shares Outstanding (Diluted) | 4.00B4.00B | 0.0% |
05—Questions
Frequently Asked Questions
Why did Ford's 2018 earnings decline even though revenue grew?
Automotive EBIT declined, mainly from lower profitability in China (lower joint venture income) and Europe (product refresh costs and Ford-specific challenges), along with about $3.3 billion of headwinds from tariffs, commodities, currency, and Takata recall costs. Net income was also hit by a larger pension and OPEB remeasurement loss at year-end 2018 and personnel separation actions. Revenue growth did not offset these cost pressures.
Is Ford's balance sheet and liquidity position strong enough to support its dividend and investments?
Based on management's disclosures, yes. Company cash was $23.1 billion and total Company liquidity was $34.2 billion, both above internal targets. Company debt excluding Ford Credit was $14.1 billion, with adjusted debt to EBITDA of 3.2:1. Shareholder distributions were about $3.1 billion in 2018, and management expects about $7 billion of annual capital spending through 2022. Cash generation was weaker, however, with operating cash flow down to $15.0 billion.
What is Ford's 2019 outlook?
Management expects potential year-over-year improvement in key metrics: revenue above $160.3 billion, adjusted EBIT margin above 4.4%, adjusted ROIC above 7.1%, adjusted cash conversion above 40%, and adjusted debt to EBITDA below 3.2:1. Improvement is expected mainly in North America, China, and Europe, partly offset by higher Mobility investment and lower Ford Credit EBT. Industry volume is expected to be roughly flat globally, with a decline in the U.S. and a modest drop in China.
What are the most significant risks disclosed in the filing?
Key risks include industry volume declines in the U.S., Europe, or China; excess global capacity (about 42 million units) that pressures pricing; a hard Brexit; tariffs and trade policy; commodity and currency volatility; tightening emissions and fuel economy rules, including uncertainty over U.S. GHG standards and California ZEV mandates; product recalls and warranty costs; and pending matters such as the Brazilian tax assessments, a voluntary disclosure to the EPA on emissions certification, and an Italian competition fine of about $50 million at FCE Bank.
What restructuring actions did Ford announce that could affect future results?
Ford is pursuing a fitness redesign covering 18 major initiatives to lower structural costs, and it has begun a strategic review of its Russian joint venture, Ford Sollers. It also agreed to sell its interest in CFME to Mazda. In a February 15, 2019 subsequent event, Ford Brazil committed to exit the South American heavy truck business and end Fiesta car production, with about $460 million in pre-tax special item charges, most recorded in 2019. Ford also announced a Volkswagen alliance to co-develop commercial vans and medium pickups beginning as early as 2022.
06—Continue