Ford is hosting will host an 'Investor Day' conference – an annual event – for representatives of the investment community in Dearborn today (Wednesday, September 14). The conference is from 10am to 2pm EDT, including a question and answer session. We look ahead to it.
The event will feature presentations by Mark Fields, Ford president and CEO, Bob Shanks, executive vice president and CFO, and other members of the senior leadership team.
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So, what will be on investors' minds?
Put simply, prospects for earnings and share price valuation. There are a number of issues in the mix that impact the outlook for these things. Overall, investors will be pleased with the way things have been going for Ford Motor Company under the stewardship of Mark Fields. His predecessor, Alan Mulally, let's remind ourselves, instituted the 'One Ford' strategic business imperative when Ford responded to the collapse of the US market and international financial crisis of 2009 (and unlike GM and Chrysler, it stayed out of Chapter 11). Strip everything down to the essentials and make sure you do that right – fewer platforms and reduced product complexity allied to a strong brand, improved vehicle designs for scalable engineering and lower cost manufacturing across the globe. While it was identified as Mulally's strategic direction, the capable and experienced hands of Mark Fields underpinned the strategy – and the internal cultural change that came with it – and he pretty much continued where Mulally left off in the summer of 2014.
Ford has had an impressive run of good financial results over the past two years. The conditions for that have been exceptionally good – North America and China have been growing volume and income for Ford. Recovery in the European car market helped to get European operations back in the black. Moreover, high margin truck sales in North America have been nice and strong, typified by the success of the latest F-150 pickup and its successful shift to an aluminium body. Ford has been at the forefront of powertrain advances in its EcoBoost range. Electrification has gone moderately well with Ford's hybrid strategy in the US (largely avoiding the choppier waters of full EVs). This year, Ford booked record net profit in Q1. Yes, there was a dip in Q2 but quarterly net income just shy of US$2bn is not to be sniffed at. This year, Ford expects total company adjusted pre-tax profit to be about US$10.2bn (recently lowered from US$10.8bn on expanded NA door latch recall costs – see below). It is lower than last year's record but would constitute the company's second best year since 2000. That's not a bad backdrop going into an investors' meeting, you might reasonably think.
However, investors will be concerned at several developments and are sure to fire some serious questions at Messrs Fields and Shanks.
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By GlobalDataTo be fair, Ford has been very open about some of the challenges the company faces over the remainder of the year. In its second quarter earnings review, it acknowledged that there are negative impacts ahead arising from:
- Second half seasonality (a natural tendency for H2 results to be lower than H1)
- Costs associated with the Super Duty launch ('major impact in Q3')
- Higher commodities and exchange rate headwinds
- Brexit risks (additional depreciation of sterling will hit earnings from UK and the UK market may be lower than it would otherwise have been)
Ford has also acknowledged that it is getting more difficult to make money in China. Ford cites the weaker yuan, market segmentation developments (the voracious appetite for SUVs has caught several makers by surprise, not just Ford) and higher costs. Market share in China has been recovering this year, but Ford has set expectations for the Asia-Pacific region as a whole pretty low.
Perhaps more worrying is the emergence of a recall – on door latches – in North America that threatens to put a dent in Q3 earnings. Investors are sure to seek some reassurance that costs are contained (full year earnings guidance recently shaved down). The recall now extends to almost 2.4 m vehicles in North America from an initial 0.9m affected vehicles. In the affected vehicles, the pawl spring tab in the side door latch could break. A door latch with a fractured pawl spring tab typically results in a "door-will-not-close" condition. A door that opens while driving increases the risk of injury. The expanded recall is costly enough to impact Q3 earnings because it exceeds the capital reserve 'put aside' for such items.
Looking around the world, there are bound to be questions about Russia and South America. The company sees Russia and South America "positioned for recovery", with ASEAN remaining profitable (but Asia-Pacific net making a small overall profit contribution after China) and a "path to profitable growth in Middle East and Africa" (loss-making on problems for economies due to collapsed energy and commodities prices, currencies). As it pushes for a path to profitability in all emerging markets, Ford says it is re-evaluating its strategy and business model for India.
Looking longer term, there are the perennial questions surrounding the emergence of advanced new technologies – especially autonomous drive – and the impact on traditional automakers such as Ford. As Uber starts driverless car trials in Pittsburgh this week, such questions perhaps start to become more "front of mind" for investors. Ford's Fields has talked a very good game in this area, appearing to be well aware of the need for Ford to position itself to address rapidly emerging technologies and the need for car companies to meet the potentially disruptive challenge from new mobility business models. But that doesn't mean throwing out the manufacturing baby with the bathwater. "As we expand to be an auto and a mobility company, we're not moving from an 'old' business to a 'new' business. We're moving to a bigger business," Fields says. As ever, investors will be concerned about the business risks and looking for evidence that Ford is on top of the risks and has a credible strategy to deliver in this area, ahead of competitors (both automotive and non-automotive).
Some possible questions for Fields/Shanks from analysts/investors
- How confident are you about the NA profitability outlook given the plateauing of the US light vehicle market and generally higher incentives? August results suggest that Ford is finding the market heavy going already with US light vehicle sales down almost 9% YoY in August and Ford share down so far this year. Will incentives go up?
- Still on NA, how well are Ford's model cycles set up for anticipated segmentation developments?
- Is the NA door latch recall cost now fully contained and how will it be absorbed over the next quarter?
- In terms of the global picture where are the biggest risks for Ford in H2?
- Is Russia really about to rebound given international energy price prospects? (The latest data suggests a rebound still elusive.) What are Ford's market assumptions? How much does Ford's commitment to invest in Russia act as a drag on the bottom line over the next two quarters given persistent low and below forecast revenue flows from there? And when the market does spark into life, isn't there a danger that margins will remain low as supply ramps up rapidly from other makers, most notably AvtoVAZ? How does Ford hang on to margin in that environment?
- China. What happens next year when the market falls and over-supply becomes a broader industrial problem? How does Ford protect itself?
- Why is Ford re-evaluating its strategy (partners, distribution, manufacturing, product offering?) for India and what might it mean?
- Autonomous drive technology. Is 'level 4' driverless car tech in market by 2021 really feasible? How much is this tech costing? And when it is commercialised, how does it turn into a profitable revenue stream for FMC? Early days perhaps, but what kind of visions – tied to financial modelling of some sort – does Ford have?
- Electrification. What are the prospects for Ford PHEVs (including outside of NA), what is the contribution to bottom line and to what extent will Ford seriously address the full BEV sector in the medium-term? Are more partnerships possible, for example in China to make the most of the New Energy Vehicles (NEVs) opportunity that is rapidly opening up?
- How is Ford ensuring that it has the right supplier mix – and relations – to support its aim to be competitive in advanced tech hotspots, at a global level?
- What's the latest view on Brexit risks and how they potentially impact Ford's bottom line via Ford Europe's performance?
- How is the Vignale sub-brand performing in Europe and is it addressing Ford's lack of brand presence in the premium area of the market? And related, what's the latest on Lincoln plans outside of North America?
We should also hear Ford's guidance for 2017…
