- Ford posted weaker Q4 2017 results than expected.
- CEO Jim Hackett was challenged on his plan to return Ford to fitness.
- Wall Street has watched Tesla post awful earnings while telling a compelling growth story – and it wants the rest of the industry to follow that example.
Wall Street wants Ford to start telling a new story – desperately.
Wednesday brought a triple whammy on fourth-quarter and full-year 2017 earnings for the carmaker: a miss on analysts expectations for the quarter, a restatement of lower earnings expectations for 2018, and a profit margin for 2017 of just 5%.
The stock slipped in after-hours trading, but not by much, suggesting that investors had digested the disappointment. Ford shares were already lagging the broader markets and its peers, so there wasn’t much justification for a sell-off.
On a conference call with analysts after the results were announced, CEO Jim Hackett – he took over from Mark Fields in mid-2017 – talked with analysts about the details of six key initiatives that he intends to use to redesign Ford’s business for a higher level of what he’s termed “fitness.”
Morgan Stanley’s Adam Jonas, who has a bearish outlook on Ford’s stock with price target of $US10 (the stock is currently at about $US12), took Hackett to task in an extraordinary exchange, given the typically respectful tone displayed toward industry leaders.
“This is the time,” Jonas said, insisting that Hackett seemed unwilling to get into greater detail on his plan.
“That’s a problem, Jim,” Jonas said, adding that more transparency is needed to that “investors and your associates at Ford can rally around the mission.”
Hackett countered that Jonas would have to “stand in line” so that Ford could articulate the full mission to the company before rolling it out to the financial community.
Investors are hungry for growth
Ford’s business is a long way from troubled, despite the weaker-than-expected Q4 profit – a huge reversal, in fact, from a loss in Q4 of 2016. The company has a huge war chest of cash and has seen its lineup of pickups and SUVs post robust sales.
And although the stock price is obviously suffering by comparison with GM and upstart Tesla, CFO Bob Shanks explained in an interview with Business Insider that while Ford expects 2018 full-year earnings-per-share to come in lower than for 2017 ($US1.70 versus $US1.78 at the upper end), the “house hasn’t fallen.”
It certainly hasn’t fallen for dividend-driven investors, who can buy Ford’s 5% annual payout at what now looks like a bargain price. In a statement, Shanks said that Ford would distribute “about $US3.1 billion” in 2018, compensating investors for their patience.
Wall Street, however, is hungry for Ford to craft a growth story. Tesla shares have surged over the past year thanks to its growth narrative, despite the company’s record losses and inability to hit its production targets.
By necessity, traditional automakers like Ford have vast legacy businesses to manage and an enormous number of customers to serve. Conveniently, they have also been raking in money amid a sales boom for the past three years, giving them the resources to aggressively pursue new opportunities that could bring profit margins far higher than the usual 10% range the industry is used to.
Ford’s challenge is to create a story that’s different from its competitors and not recklessly devoted to jumping on hot trends that might not add up to much as businesses. Self-driving cars, for example, have stolen the thunder of all-electric vehicles, which on balance have been a disappointment based on earlier predictions; they make up only about 1% of global sales.
Ford doesn’t want to miss out, but it also doesn’t want to waste money. The difficulty for Hackett, in particular, is that Wall Street has decided that telling a story is free, while Ford has determined that it doesn’t want to be rushed when billions are at stake.