01—Abstract
Summary
Summary of the 10-K filed February 5, 2020. Cited figures are marked; the original filing is the authoritative source.
Ford Motor Company's 2019 Form 10-K shows a year of sharp earnings deterioration driven by restructuring and pension charges rather than core operating weakness alone.
Revenue fell 3% to $155.9 billiona, and net income attributable to Ford collapsed to just $47 million (diluted EPS of $0.01), down from $3.7 billion in 2018. The decline was driven by $6.0 billion of pre-tax special items, including $3.2 billion of Global Redesign charges (European restructuring, India held-for-sale impairment, South America and Russia actions) and a $2.5 billion pension and OPEB remeasurement loss that did not affect 2019 cash. Management's adjusted metrics tell a more moderate story: Company adjusted EBIT fell about 9% to $6.4 billion, adjusted EPS was $1.19, and adjusted free cash flow was flat at $2.8 billion.
Underlying performance was mixed. The Automotive segment's EBIT declined to $4.9 billionb (3.4% margin) on lower wholesale volumes (down about 10% to 5.4 million units), with North America still the profit engine at $6.6 billion EBIT. China losses narrowed meaningfully, while Europe, South America, and Asia Pacific remained weak or loss-making.
Ford Credit was a bright spot, with EBT rising 14% to $3.0 billionc on favorable lease residual and credit loss performance, and the Mobility segment's loss widened to $1.2 billion as autonomous vehicle investment rose more than 75%. For investors, the key watch items are the balance sheet and guidance. Company cash was $22.3 billion against a $20 billion target, total Company liquidity was $35.4 billion, and the regular $0.15 quarterly dividend was maintained.
The company guided 2020 adjusted EBIT to $5.6 to $6.6 billiond and adjusted EPS to $0.94 to $1.20, assuming no material coronavirus impact. Credit ratings were under pressure: S&P cut Ford to BBB- in October 2019 with a stable outlook, and Fitch and DBRS carry negative outlooks, so the company sits at the bottom edge of investment grade. Ongoing risks include the Global Redesign execution, a pending U.S. emissions certification investigation involving DOJ, heavy UAW-related labor costs, and the Brexit transition.
02—Key points
Key Highlights
- Net income attributable to Ford fell to $47 million ($0.01 diluted EPS) from $3.7 billion in 2018, driven by $6.0 billion of pre-tax special items, including $3.2 billion of Global Redesign charges and a $2.5 billion pension/OPEB remeasurement loss.
- Adjusted EBIT declined about 9% to $6.4 billion (4.1% margin) and adjusted EPS was $1.19, versus $1.30 a year earlier, reflecting lower Automotive EBIT of $4.9 billion and a wider Mobility loss of $1.2 billion.
- Ford Credit was the strongest segment, with EBT up 14% to $3.0 billion, supported by favorable lease residual performance, lower credit losses, and derivative results; it contributed $3.0 billion of the company's pre-special-items earnings.
- Wholesale volume fell 10% to 5.4 million units, with North America down 5% and China down 27%, while North America remained the largest profit contributor at $6.6 billion EBIT.
- Company liquidity was $35.4 billion and Company cash was $22.3 billion, above the $20 billion target; operating cash flow rose to $17.6 billion, largely due to Ford Credit distributions, and adjusted free cash flow was $2.8 billion.
- 2020 guidance calls for adjusted EBIT of $5.6 to $6.6 billion, adjusted EPS of $0.94 to $1.20, and adjusted free cash flow of $2.4 to $3.4 billion, excluding any coronavirus impact; the $0.15 quarterly dividend was maintained.
- Credit ratings sit at the low end of investment grade: S&P downgraded Ford and Ford Credit to BBB- in October 2019, and Moody's rates Ford Credit Ba1, while Fitch and DBRS carry negative outlooks.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, Ford Motor Co kept $0.00.
- Revenue$155.90B100.0%
- Cost of revenue−$134.69B86.4%
- Gross profit$21.21B13.6%
- Operating costs−$20.63B13.2%
- Operating income$574.0M0.4%
- Interest, other & tax−$527.0M0.3%
- Net income$47.0M0.0%
Where FY2019 revenue went
$155.90B- Cost of revenue: $134.69B, 86% of revenue
- Net income: $47.0M, 0.0% of revenue
- R&D: $7.40B, 4.7% of revenue
- SG&A: $11.16B, 7.2% of revenue
- Other operating costs: $2.07B, 1.3% of revenue
Kept 0.0% as net incomeNet income $47.0M · 0.0%Other operating costs $2.07B · 1.3%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 5, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $155.90B$160.34B | −2.8% |
| Cost of Revenue | $134.69B$136.27B | −1.2% |
| Gross Profit | $21.21B$24.07B | −11.9% |
| R&D Expenses | $7.40B$8.20B | −9.8% |
| SG&A Expenses | $11.16B$11.40B | −2.1% |
| Operating Expenses | $155.33B$157.13B | −1.2% |
| Operating Income | $574.00M$3.20B | −82.1% |
| Interest Expense | $5.41B$5.16B | +4.9% |
| Net Income | $47.00M$3.68B | −98.7% |
| EPS (Basic) | $0.01$0.93 | −98.9% |
| EPS (Diluted) | $0.01$0.92 | −98.9% |
| Shares Outstanding (Basic) | 3.97B3.97B | −0.1% |
| Shares Outstanding (Diluted) | 4.00B4.00B | +0.2% |
05—Questions
Frequently Asked Questions
Why did Ford's net income fall so sharply in 2019 if adjusted EBIT only dropped about 9%?
The gap is explained by special items. Ford recorded $6.0 billion of pre-tax special items in 2019, including $3.2 billion of Global Redesign charges (mainly European restructuring, the held-for-sale India Automotive impairment, and South America and Russia actions) and a $2.5 billion pension and OPEB remeasurement loss. The pension loss is a non-cash mark-to-market charge driven by lower discount rates, but the Global Redesign charges carry about $911 million of 2019 cash costs and further charges of $0.9 to $1.4 billion are expected in 2020.
How healthy is Ford Credit, and does it still support Ford's earnings?
Ford Credit remained profitable, with 2019 EBT of $3.0 billion (up 14%) and ROE of 15%. Credit losses were stable, with a loss-to-receivables ratio of 52 basis points, and net liquidity available for use was $33.1 billion. Managed leverage was 8.9:1, within the 8:1 to 9:1 target range. Ford Credit's distributions to the parent rose to $2.9 billion, a significant share of Company adjusted free cash flow. Management expects 2020 Ford Credit EBT to decline because auction values are expected to fall about 5%.
Is Ford's dividend at risk, and what is its balance sheet position?
The regular quarterly dividend was held at $0.15 per share in 2019 and guidance assumes it continues in 2020, subject to board approval. Shareholder distributions totaled $2.6 billion in 2019. Company cash of $22.3 billion and liquidity of $35.4 billion were both above management's targets. However, Company net cash after debt fell to $7.0 billion from $8.9 billion, underfunded global pension obligations were $6.8 billion, and OPEB underfunding was $6.1 billion, so pension and retiree obligations remain a meaningful claim on cash.
What are the main regulatory and legal risks disclosed in the filing?
The most significant items are: (1) a U.S. emissions certification investigation covering road-load estimation and coastdown testing, which the company voluntarily disclosed to the EPA and CARB and which now includes a criminal probe by the U.S. Department of Justice; (2) fuel economy and GHG regulatory uncertainty, including litigation over California's preemption and a possible bifurcated national standard; (3) the Takata airbag economic loss settlement of $299 million, which is in the final approval process; (4) a Brazilian tax dispute over state and federal incentives, with potential collateral requirements; and (5) an Italian Competition Authority fine against FCE Bank of €42 million under appeal. The company states it cannot predict the outcome of the emissions investigations or assure that they will not have a material adverse effect.
What does Ford's restructuring mean for future margins and profitability?
Global Redesign is intended to lower structural costs by exiting unprofitable vehicle lines and markets, including the Russia passenger car segment, the South American commercial heavy truck business, the Bridgend plant in the UK, and the India Automotive operations being contributed to a Mahindra joint venture. Structural costs excluding pension and OPEB were lower in 2019 because of these fitness actions. However, the program is still producing significant charges (2020 EBIT charges are guided at $0.9 to $1.4 billion), and the filing warns that delays or failures in executing the redesign, particularly in Europe and South America, could limit the expected cost reductions. Management also notes that rising warranty costs, UAW contract bonuses, and an uncertain China outlook continue to pressure margins.
06—Continue