Ford Motor Company — Form 10-Q Summary
Business context and reporting period
Quarter ended September 30, 2018; comparisons are with the third quarter and first nine months of 2017. Ford reports Automotive, Mobility, and Ford Credit segments, with Corporate Other, debt interest, and special items shown separately. Segment presentation changed in 2018, with prior periods retrospectively adjusted.
Financial results and liquidity
| Metric | Q3 2018 | Q3 2017 | First 9 months 2018 | First 9 months 2017 |
|---|---|---|---|---|
| Revenue | $37.7B | $36.5B | $118.5B | $115.5B |
| Net income attributable to Ford | $991M | $1.572B | $3.793B | $5.211B |
| Diluted EPS | $0.25 | $0.39 | $0.95 | $1.30 |
| Operating cash flow | Not separately stated for quarter | Not separately stated for quarter | $13.665B | $14.949B |
Q3 Company adjusted EBIT was $1.7B, with adjusted EPS of $0.29. Management reported a 4.4% adjusted EBIT margin and 2.6% net income margin, down 1.9 and 1.7 percentage points year over year, respectively. First-nine-month capital spending was $5.669B.
Q3 pretax segment results included Automotive income of $1.402B, Ford Credit income of $678M, Mobility loss of $196M, and Corporate Other loss of $216M. Interest on debt was $343M and special items were a $231M loss.
At September 30, cash and cash equivalents were $18.562B and marketable securities were $17.780B. Company cash excluding Ford Credit was $23.7B and Company liquidity was $34.7B. Automotive debt was $14.7B, about $1.2B below year-end 2017; Ford Credit debt was $138.2B. Total equity was $36.6B. Ford Credit managed receivables were $152B; its managed leverage was 8.4:1, within its 8:1–9:1 target range.
Material changes versus prior period
- Q3 revenue increased 3.3%, but Ford-attributable net income fell $581M and diluted EPS declined $0.14. For the first nine months, revenue rose about 2.7% while Ford-attributable net income declined about 27%.
- Management cited lower wholesale volume—down 10% year over year—and lower market share, including weakness in China. Strong North American truck, utility, and van mix supported results despite lower volume and higher commodity costs.
- Ford Credit posted its strongest quarter in more than seven years, with $678M pretax income, benefiting from volume, mix, and lease residuals. Consumer credit metrics were described as healthy.
- Year-to-date operating cash flow decreased $1.284B. Inventory increased to $12.810B from $11.176B at year-end 2017; management said higher inventory drove negative working capital, with a reversal expected in Q4.
Outlook, commentary, risks, and unusual items
- Ford maintained 2018 adjusted EPS guidance of $1.30–$1.50. Full-year capital spending was expected to be about $7.5B; shareholder distributions were expected to total $3.1B.
- Ford expected full-year auction values to improve on average 3% at constant mix. Ford Credit projected 2018 public term funding of $28B–$30B.
- Management highlighted China sales and pricing pressure, losses in international automotive operations, Turkey and Russia headwinds, South American currency and inflation pressures, and European launch costs. New China model launches were expected to support sales growth beginning in Q1 2019.
- Moody’s downgraded Ford and Ford Credit to Baa3 with negative outlook in August 2018; S&P revised its outlook to negative in July and affirmed ratings.
- Ford reported a $5.3B pension underfunded status; it expected funded status to improve by year-end under its assumptions. It planned about $850M in 2018 pension contributions and unfunded-plan benefit payments.
- Potential reasonably possible losses in excess of accruals for material indirect tax, customs, and competition matters were estimated at up to about $900M. An Italian competition authority investigation of Ford Credit’s Italian subsidiary could result in a material fine if a violation is found. Ford also disclosed product, warranty, regulatory, litigation, credit, residual-value, currency, commodity, and interest-rate risks.
- Q3 included a $101M tax benefit from settlements; the first nine months included a $235M benefit from non-U.S. capital loss carryforwards. The filing also notes a 2018 change to FIFO inventory accounting, with an immaterial interim-period impact.
Important facts for investors to verify
- Whether the full-year adjusted EPS guidance remains achievable given declining year-to-date earnings and regional operating pressures.
- Trends in China sales, pricing, market share, wholesale volume, and the expected contribution from upcoming product launches.
- Automotive cash generation, inventory levels, capital spending, and liquidity relative to Ford’s stated cash and liquidity targets.
- Ford Credit’s credit losses, lease residual values, funding access, and leverage, particularly after the dealer-financing charge-offs disclosed for 2018.
- Developments in the Italian competition matter, the estimated up-to-$900M excess-loss exposure, warranty obligations, and pension funding assumptions.