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Ford Plunges After Warning of Q1 Loss Amid Coronavirus Woes
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Ford’s (F - Free Report) shares declined more than 5% during yesterday’s trading session, after the company issued a dire warning about first-quarter results amid the COVID-19 pandemic. The U.S. auto giant anticipates adjusted pretax loss of $600 million for the first quarter. The firm’s first-quarter sales will be adversely affected owing to depressed demand for vehicles, thanks to the coronavirus outbreak. Discouragingly, the bleak update put an end to the company’s four-day winning streak, with Ford closing yesterday’s session at $5.16.
Highlights From Preliminary Results
The company expects revenues to be $34 billion, indicating a decline of 16% year over year. First-quarter vehicle wholesale shipments are down 21% from the corresponding period of 2019. Adjusted loss before interest and taxes is expected to be $600 million. The prior-year quarter’s adjusted EBIT was $2.4 billion. Ford expects to incur one-time charges of $300 million in the first quarter.
On a positive note, Ford’s CFO emphasized on the fact that the firm has enough cash to stay afloat at least till the end of the third quarter even “with no incremental vehicle production and wholesales or financing actions”. While the company’s confidence to be able to survive through the third quarter is encouraging, investors are not particularly glad, in view of the worse-case scenarios.
As of Apr 9, the Zacks Rank #3 (Hold) company had about $30 billion in cash, including $15.4 billion that the firm withdrew from its two credit lines last month to preserve financial flexibility. Ford Credit — the firm’s financing arm — had $28 billion in liquidity at the end of the March quarter, which was well above the $25-billion target. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
COVID-19 Dashes Near-Term Recovery Hopes for Ford
Ford’s joint ventures in China are currently operational as the situation is stabilizing in the country. What started as an epidemic in China early this year has taken the shape of a pandemic and disrupted the entire economy. Amid the coronavirus rampage, Ford has been forced to shutter majority of operations across the globe. As yet, it has not disclosed dates for resumption of operations. The company expects a phased restart during the second quarter. Encouragingly, it has implemented enhanced safety measures to protect workers.
Investors already know that coronavirus-induced uncertainty had prompted Ford to draw down its credit revolvers, suspend dividend and scrap annual view last month. The company has also been evaluating other options like pay cuts, and reducing capex and operating costs to preserve cash in the wake of the pandemic.
In March, Ford’s debt got downgraded to junk by S&P Global Ratings. Notably, the carmaker’s credit metrics were already on the borderline before the virus outbreak. To add to that, factory shutdowns, lower demand of vehicles and the possibility of a recession resulted in cash flow crunch, liquidity and leverage issues, which further dampened the firm’s outlook.
While it’s difficult to ascertain how and when Ford will be able to recover from the coronavirus-induced crisis, shareholders can take heart from the fact that its cash balance will keep the lights on for a while.
Brace for More Warnings
Although Ford’s warning on first-quarter results appears dreary, it should not come as a surprise. In fact, as the coronavirus has rattled the auto industry and dented demand for vehicles, investors should brace for possible warnings from other auto biggies including General Motors (GM - Free Report) , Fiat Chrysler and Tesla (TSLA - Free Report) . Given the fluidity of the situation, one can expect more auto companies to make preannouncements ahead of their upcoming earnings.
Well, coronavirus-induced damage has been done much and the situation is unlikely to improve anytime soon. Challenges related to the virus outbreak will certainly impact the upcoming earnings cycle. However, second and third-quarter earnings will be a litmus test for automakers, as these will determine the actual gravity of the COVID-19 pandemic on the economy and the auto sector.
Given the rate at which the virus is spreading and the fact that customers are likely to put off spending on big-ticket discretionary items for quite some time, carmakers are unlikely to churn big profits for a while. Moreover, as the pandemic is showing up vulnerabilities on balance sheets of various auto firms, an auto industry bailout could be in the cards.
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Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
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Ford Plunges After Warning of Q1 Loss Amid Coronavirus Woes
Ford’s (F - Free Report) shares declined more than 5% during yesterday’s trading session, after the company issued a dire warning about first-quarter results amid the COVID-19 pandemic. The U.S. auto giant anticipates adjusted pretax loss of $600 million for the first quarter. The firm’s first-quarter sales will be adversely affected owing to depressed demand for vehicles, thanks to the coronavirus outbreak. Discouragingly, the bleak update put an end to the company’s four-day winning streak, with Ford closing yesterday’s session at $5.16.
Highlights From Preliminary Results
The company expects revenues to be $34 billion, indicating a decline of 16% year over year. First-quarter vehicle wholesale shipments are down 21% from the corresponding period of 2019. Adjusted loss before interest and taxes is expected to be $600 million. The prior-year quarter’s adjusted EBIT was $2.4 billion. Ford expects to incur one-time charges of $300 million in the first quarter.
On a positive note, Ford’s CFO emphasized on the fact that the firm has enough cash to stay afloat at least till the end of the third quarter even “with no incremental vehicle production and wholesales or financing actions”. While the company’s confidence to be able to survive through the third quarter is encouraging, investors are not particularly glad, in view of the worse-case scenarios.
As of Apr 9, the Zacks Rank #3 (Hold) company had about $30 billion in cash, including $15.4 billion that the firm withdrew from its two credit lines last month to preserve financial flexibility. Ford Credit — the firm’s financing arm — had $28 billion in liquidity at the end of the March quarter, which was well above the $25-billion target. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
COVID-19 Dashes Near-Term Recovery Hopes for Ford
Ford’s joint ventures in China are currently operational as the situation is stabilizing in the country. What started as an epidemic in China early this year has taken the shape of a pandemic and disrupted the entire economy. Amid the coronavirus rampage, Ford has been forced to shutter majority of operations across the globe. As yet, it has not disclosed dates for resumption of operations. The company expects a phased restart during the second quarter. Encouragingly, it has implemented enhanced safety measures to protect workers.
Investors already know that coronavirus-induced uncertainty had prompted Ford to draw down its credit revolvers, suspend dividend and scrap annual view last month. The company has also been evaluating other options like pay cuts, and reducing capex and operating costs to preserve cash in the wake of the pandemic.
In March, Ford’s debt got downgraded to junk by S&P Global Ratings. Notably, the carmaker’s credit metrics were already on the borderline before the virus outbreak. To add to that, factory shutdowns, lower demand of vehicles and the possibility of a recession resulted in cash flow crunch, liquidity and leverage issues, which further dampened the firm’s outlook.
While it’s difficult to ascertain how and when Ford will be able to recover from the coronavirus-induced crisis, shareholders can take heart from the fact that its cash balance will keep the lights on for a while.
Brace for More Warnings
Although Ford’s warning on first-quarter results appears dreary, it should not come as a surprise. In fact, as the coronavirus has rattled the auto industry and dented demand for vehicles, investors should brace for possible warnings from other auto biggies including General Motors (GM - Free Report) , Fiat Chrysler and Tesla (TSLA - Free Report) . Given the fluidity of the situation, one can expect more auto companies to make preannouncements ahead of their upcoming earnings.
Well, coronavirus-induced damage has been done much and the situation is unlikely to improve anytime soon. Challenges related to the virus outbreak will certainly impact the upcoming earnings cycle. However, second and third-quarter earnings will be a litmus test for automakers, as these will determine the actual gravity of the COVID-19 pandemic on the economy and the auto sector.
Given the rate at which the virus is spreading and the fact that customers are likely to put off spending on big-ticket discretionary items for quite some time, carmakers are unlikely to churn big profits for a while. Moreover, as the pandemic is showing up vulnerabilities on balance sheets of various auto firms, an auto industry bailout could be in the cards.
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>