Ford Motor Co. in Dearborn reported significantly reduced first-quarter 2020 financial results due to the COVID-19 pandemic. Its adjusted free cash flow was -$2.2 billion.
The company reported quarterly revenue of $34 billion and a net loss of $2 billion, or a loss of 50 cents per share. Adjusted EPS was -23 cents. Ford reported an adjusted loss before interest and taxes of $632 million; the estimated negative effect of the virus on adjusted EBIT was at least $2 billion.
Ford shifted its efforts to creating supplies to fight the pandemic as well as balance-sheet management.
“Ford people are keeping each other safe, limiting the spread of the virus, safeguarding health care workers and first responders, and taking care of customers,” says Jim Hackett, CEO. “The imagination, initiative, and execution of our team is helping save lives today, and those qualities will allow Ford to emerge from this as a stronger company.”
The company recorded a volume-driven automotive EBIT loss of $177 million, as $346 million in positive EBIT from North America was more than offset by auto losses in other regions. The quarterly loss in mobility was expected, as Ford continues to invest in growth from related services, as well as in autonomous vehicles and the underlying business model.
Ford Credit delivered $30 million in first-quarter earnings before taxes, down $771 million from the same quarter the previous year. Strong portfolio performance was offset by about $600 million from increased credit-loss reserves and higher depreciation of off-lease vehicles awaiting sale and anticipated operating lease defaults, all reflecting estimated impact of the coronavirus in future periods.
To maximize cash and preserve financial flexibility through and beyond the pandemic, Ford is lowering operating costs, reducing capital expenditures, and deferring portions of executive salaries; recently borrowed more than $15 billion from existing lines of credit, and this month issued $8 billion in unsecured bonds; and suspended its regular quarterly dividend and antidilutive share repurchase program.
Incremental cash enables the company to navigate temporary adverse effects on working capital caused by the coronavirus-related production and supply chain shutdowns.
At the end of the first quarter, Ford and Ford Credit had $35.1 billion and $28 billion in liquidity, respectively. Ford Credit remains an important source of support for customers and dealers, with a strong, inherently liquid balance sheet. The financing unit is generating liquidity as its balance sheet size declines with lower consumer demand for vehicles. As of April 24, Ford had a cash balance of $35 billion.
“We’ve taken decisive actions to lower our costs and capital expenditures and been opportunistic in strengthening our balance sheet and optimizing our financial flexibility,” says Tim Stone, CFO. “We believe the company’s cash is sufficient to take us through the end of the year, even with no additional vehicle wholesales or financing actions.”
While Ford shut down its plants around the world in March, cash use has remained high because production supplier payables are about 45 days. The company’s cash outflow is expected to be substantially lower after early May as Ford pays down these payables.
Ford says it remains focused on operational excellence and plans to offer action, agility, and transparency. The company says these qualities have continued as it manages business continuity: mapping the company’s multilevel supply chain, creating a logistics portal to track shipments of materials and components, securing air-freight capacity to keep safety equipment and production parts moving around the globe, and providing services.
“We quickly zeroed in on taking care of customers and controlling costs,” said Ford COO Jim Farley. “Our team in China did a very good job managing through the crisis and provided us with a valuable template for bringing back up operations in the rest of the world.”
Farley announced leadership changes two weeks ago designed to help fix, accelerate, and grow the company’s automotive business. Central to the plan is renewing and continually refining effectiveness in product development and launch execution, including of increasingly smart, connected vehicles.
Next week in Europe, the company plans to begin a phased restart of its production outside China with enhanced safety standards in place to protect workers. As it brings up manufacturing, Ford will resume its cycle of new product introductions. In the U.S., for example, the company is in the process of lowering the average age of Ford-brand vehicles from more than five years in 2017 to about three years by 2023.
Among forthcoming launches are the all-electric Mustang Mach-E, which was unveiled in November; a redesigned F-150, featuring a hybrid-electric version; a small, rugged off-road utility vehicle; continuation of a multiyear series of market-specific Ford and Lincoln vehicles in China, many of which will be electric; electrified versions of the Lincoln Corsair and Ford Escape and Kuga in Europe; and the return of the Ford Bronco in 2021.
On Tuesday, the automaker said it was delaying an electric Lincoln SUV it planned to develop with technology from Ford’s startup partner Rivian in Plymouth Township.
In March, the company withdrew guidance for 2020 financial performance it had given in early February. The outlook excluded possible implications of the coronavirus, which at the time had not yet reached pandemic stage.
According to Stone, today’s economic environment remains too ambiguous to provide full-year 2020 financial guidance. He says the company expects second-quarter EBIT to be a loss of more than $5 billion, as year-over-year industry volumes decline significantly in every region.
Ford’s actual results could differ from guidance due to risks, uncertainties, and other factors. The company plans to report second-quarter 2020 financial results on July 30.
In mid-March, Ford began instructing people to work remotely wherever possible and suspended component and vehicle production in North and South America, Europe, India, South Africa, and Southeast Asia, including in Thailand and Vietnam. These actions were taken even as the company was cautiously restarting operations in China, where coronavirus risks occurred and started moderating earlier.
In an effort to help its customers and communities, Ford has created a payment deferment program, enhanced online options, introduced no-contact pickup and delivery of vehicles for service, and more. Its dealers have been helping in these efforts.
The company has prioritized production of 1,500 ambulances by JMC, a Ford joint-venture partner in China; has engineered and made more than 8 million face shields, as many as 100,000 respirators with 3M, and about 1 million face masks per day so far, all in partnership with United Auto Workers, and is producing up to 100,000 washable isolation gowns a week with Joyson Safety Systems; and is manufacturing 50,000 ventilators by July 4 in the U.S. in collaboration with the UAW and GE Healthcare as well as tens of thousands more in other countries. It is also contributing millions of dollars in vehicles and cash.
Ford is also assisting 3M, Thermo Fisher Scientific, and other companies with streamlining and increasing their own output of PPE and medical equipment.
“People in other industries have come to us during a time when we all need to help each other,” Hackett says. “Nimble and crisp execution – even applied to product areas that are new to us – remains one of Ford’s defining qualities and will always differentiate our business.”