By Mike Colias
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (January 25, 2018).
On his first day on the job, Ford Motor Co. Chief Executive Jim
Hackett compared fixing the auto giant's problems to a Rubik's
cube. Nine months later, he is still trying to solve the
puzzle.
Ford on Wednesday reported disappointing fourth-quarter results
and reiterated a bleak outlook for 2018. As Mr. Hackett scrambles
to catch up to General Motors Co. and other rivals on electric and
driverless cars, the pressure on the company's current finances is
evidence the new CEO is facing a multifaceted challenge.
Mr. Hackett, a longtime office-furniture executive, has begun
cutting expenses in core areas including engineering and marketing.
In recent months, executives have signaled plans to exit poorly
performing segments, including a potential retreat from sedans and
compact cars, while rerouting billions of investment into
high-profit trucks and sport-utility vehicles.
The outlook for 2018, however, indicates that Mr. Hackett needs
to manage several factors outside of his direct control. Rising
commodity costs, unfavorable currency movements and higher interest
rates will pressure margins at both the company's automotive
division and the lucrative Ford Credit finance arm.
Ford's global profit margin of 5% on the core auto business last
year is in the bottom tier of major auto companies and well below
the 9% operating margin GM reported through the first three
quarters. A company that enjoys a lead in the profitable market for
large pickup trucks, Ford is now finding itself on more equal
ground with Fiat Chrysler Automobiles NV when it comes to regional
profits.
On Wednesday, Ford Chief Financial Officer Bob Shanks said the
auto maker needs to do a better job managing the business to
weather swings in raw-material costs and exchange rates. He said
the company's profit margin "should be 8% or more," which is Ford's
longer-range target.
"One of the reasons why perhaps you're not hearing as much from
others about [commodity prices] is because they're fitter," Mr.
Shanks said. "Despite whatever the hit is on their business,
they're still able to hit a margin that's appropriate. Our issue is
we can't do that."
Mr. Hackett has outlined a corporate "fitness" plan that aims to
cut $14 billion in cumulative costs through 2022. He wants to
simplify key areas of the business, from the way vehicles are
engineered and built to the number of model combinations available
on dealership lots.
Ford said fourth-quarter operating income fell 19% to $1.7
billion, hurt by the higher cost of steel, aluminum and other
commodities, as well as unfavorable foreign-exchange rates.
Earnings per share were 39 cents, lower than the 42-cent average
forecast of Wall Street analysts.
Revenue rose 7% to $41.3 billion, surpassing analysts'
expectations of about $37 billion.
Fourth-quarter operating profit in North America fell 16% to
$1.6 billion, as higher warranty costs offset strong sales and
pricing on Ford's flagship pickup-truck business. A spokesman said
most of Ford's roughly 57,000 unionized U.S. workers will get
profit-sharing bonuses of about $7,500, based on 2017 North
American profit.
Ford's stock price fell to a three-month low earlier this week
and closed at $12.05 Wednesday. Mr. Hackett's hiring was expected
to address investor concern about a stalled stock price, but the
company's valuation remains mired below $50 billion, significantly
lower than GM's market capitalization.
Ford outlined how much it will cost to catch up in the emerging
car-technology war taking place between conventional auto companies
and tech giants, such as Alphabet Inc. and Apple Inc. The company
is now breaking out its performance related to so-called Smart
Mobility efforts, including driverless-car research, saying it lost
about $300 million on those efforts in 2017.
"Ford's strategy will take several years to bear fruit,"
Deutsche Bank analyst Rod Lache said in a research note this month.
Analysts have expressed concern about Ford's ability to keep pace
with its closest rival, GM, at a time when major changes could be
confronting the car business.
"The performance gap between the two appears to continue to
widen," Evercore ISI said in a research note last week. GM has been
credited with keeping profits strong amid a slowdown in the U.S.
market and as it backs away from several other major markets,
including Europe.
GM reports earnings Feb. 6. It has recently unveiled plans to
build autonomous electric cars in Michigan and ramp up testing and
deployment of robot taxis in 2019, and Navigant Consulting now
ranks GM's as No. 1 and Ford as No. 4 among about 20 companies
working on autonomous cars.
As Mr. Hackett works to close the gap on future projects, his
lieutenants have been charged with employing his fitness plan. Jim
Farley, Ford's global markets chief, recently told analysts the
company is behind on overhauling key areas of the business,
including product development.
"Our business structure is out of sync with our outlook on
revenue...out of sync with our competitive set," Mr. Farley told
analysts last week. "We're taking urgent action to increase our
profitability."
Mr. Shanks said Wednesday that steel and aluminum prices began
rising in late 2016 and are projected to go higher this year amid
growing global demand. He said those two materials account for
roughly two-thirds of Ford's raw-material purchases.
Write to Mike Colias at Mike.Colias@wsj.com
(END) Dow Jones Newswires
January 25, 2018 02:47 ET (07:47 GMT)
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