Ford is rationalising its product offering and cutting costs still further. The news follows the posting of first quarter results that showed a swing to profit after a loss in the same quarter last year; revenue was also up 7%.
However, it missed analyst expectations and also said that pre-tax profit was hit by higher commodity costs and unfavourable currency exchange rates.
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The company delivered increased revenue, up 7 percent year over year, and net income of US$1.7bn, up 9% and Ford said that was ‘more than explained by a lower tax rate’.
In addition, the company said its fitness initiatives are driving an improved outlook. Ford is now targeting an 8 percent adj. EBIT margin in 2020, two years earlier than previously anticipated. Ford is also targeting its return on invested capital (ROIC) to substantially increase by 2020.
“We are committed to taking the appropriate actions to drive profitable growth and maximize the returns of our business over the long term,” said Jim Hackett, Ford president and CEO. “Where we can raise the returns of underperforming parts of our business by making them more fit, we will. If appropriate returns are not on the horizon, we will shift that capital to where we can play and win.”
Ford said the accelerated 2020 targets are enabled by $11.5 billion of cost and efficiency opportunities that span the entire company and include engineering, marketing and sales, manufacturing, material cost and IT. In addition, Ford expects to improve its capital efficiency. The company had previously expected to spend about $34 billion in capital from 2019 to 2022 and has now cut that by $5 billion, to $29 billion over the same period.
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By GlobalDataFord plans to reduce cumulative capital spending by US$5bn over 2019-2022 timeframe.
Ford said that by 2020, almost 90 percent of the Ford portfolio in North America will be trucks, utilities and commercial vehicles. Given declining consumer demand and product profitability, the company will not invest in next generations of traditional Ford sedans for North America, it said.
Over the next few years, the Ford car portfolio in North America will transition to just two vehicles – the Mustang and the Focus Active crossover coming out next year. The company is also exploring new “white space” vehicle silhouettes that ‘combine the best attributes of cars and utilities, such as higher ride height, space and versatility’.
Ford also said it is making a ‘full commitment to new propulsion choices, including adding hybrid-electric powertrains to high-volume, profitable vehicles like the F-150, Mustang, Explorer, Escape and Bronco. The company’s battery electric vehicle rollout starts in 2020 with a performance utility, and it will bring 16 battery-electric vehicles to market by 2022, it says.
“This quarter is in line with expectations and consistent with our outlook for the full year, but we know we can, and must, do better,” said Bob Shanks, executive vice president and CFO. “The entire team is focused on improving the operational fitness of our business, as well as meeting and exceeding our accelerated 2020 target of 8 percent margin and ROIC in the high teens.”
