Ford Profit-Sharing Checks: UAW Hourly Workers To Get $6,600

Feb. 5--Ford said Tuesday that its U.S. factory workers will receive $6,600 in profit-sharing checks, down $1,000 from the year before -- reflecting the company's lower profits in 2019.

A year ago, profit sharing for Ford workers averaged $7,600, which was up from $7,500 in 2017. This year's checks reflect a 13% decline.

Not all 56,000 hourly workers are eligible for the negotiated benefit; checks are expected in March.

Ford awards its UAW employees $1,000 in profit sharing for every $1 billion in North American profit before taxes. Last year, GM workers averaged a profit sharing check of $10,750 while Fiat Chrysler workers averaged $6,000. Those automakers' 2019 earnings reports come out later this week.

Tim Stone, Ford chief financial officer, said during a media briefing the company absorbed $600 million in UAW contract-related cash bonuses that are unrelated to the profit sharing checks.

Ford reported 2019 earnings before interest or taxes -- EBIT -- of $6.4 billion, down from $7 billion in 2018 and $9.6 billion in 2017. The company said it made $6.6 billion pretax in North America. North America and Ford Credit continue to be the company's only profitable units.

Ford blamed its financial situation last year on "operational challenges" with the Explorer SUV launch, labor contract costs and "higher warranty costs," Stone said.

The automaker's net income, or profit after taxes and other charges, was $47 million, down from $3.7 billion in 2018 and $7.7 billion in 2017. Ford revealed in January its net income would be affected by a $2.2 billion charge related to pension obligations, a bookkeeping adjustment.

Ford reported negative net income of $1.7 billion in the fourth quarter, a decrease of $1.6 billion.

Net income includes additional costs from what EBIT reflects.

Stone said financial "results were not OK in 2019. Looking to 2020, I'm very optimistic."

Earnings drop

The company has significantly cut its losses in Europe and China. Ford saw full-year revenue of $156 billion in 2019, down from $160 billion in 2018, generated primarily by sales in North America.

He said the company has $22 billion cash on hand, down from $23.1 billion a year ago.

"For Ford, 2019 was a company very much in transition," said Jessica Caldwell, executive director of industry analysis at the car shopping site Edmunds.com. "Clearly, they suffered a loss from the shuttered car lines. Those sales contributed to the bottom line."

In 2019, Ford saw its U.S. market share erode slightly to 13.7%, according to Morgan Stanley.

Ford Credit saw full-year earnings before taxes of $3 billion for 2019, its highest in nine years. Ford Credit recorded $2.6 billion for 2018. The credit operation showed $630 million in earnings before taxes during the fourth quarter.

America buys Ford

As always, Ford said North America continued to generate a large profit.

In the fourth quarter, it posted earnings before taxes of nearly $700 million, down 64% compared with the same period last year. The company posted a pretax profit of $21 million in Europe in the fourth quarter and a loss of $207 million in China, which was recently separated out from Asia Pacific to better reflect Ford's focus on the valuable market.

Fourth-quarter results in South America were a loss of $176 million and a loss of $83 million in the Middle East and Africa.

For the year, pretax financial performance by region:

-- North America's pretax profit was $6.6 billion -- down from $7.6 billion in 2018 and $8.1 billion in 2017.

-- China lost $771 million -- after losing $1.5 billion in 2018.

-- South America lost $704 million compared with a loss of $678 million in 2018 and $753 million in 2017.

-- Europe lost $47 million compared with a loss of $398 million in 2018 and $367 million in 2017.

-- Middle East and Africa lost $141 million after losing $7 million in 2018 and $246 million in 2017.

Stone emphasized the company's commitment to global redesign, saying the restructuring efforts are on track.

In 2018, Ford announced a plan to use its capital more efficiently, invest for growth, focus on electric vehicles and invest about $11 billion to convert product lines to fully electric or hybrid vehicles.

Value dips

Wall Street investors remain skeptical of Ford stock and CEO Jim Hackett, who took the helm in May 2017, despite revenue generated by trucks.

Hackett said during an investor call on Tuesday evening, "Our execution was simply not nearly good enough. We recognize this. We've taken steps to address these shortfalls."

He highlighted the Explorer launch, which "marred" 2019, and warranty costs "primarily for vehicles designed years ago," which hurt the company financially.

Ford expanded its warranty coverage in 2019 for Ford Focus and Fiesta vehicles with defective dual-clutch transmissions, and the company recently settled a multimillion dollar class action lawsuit involving nearly 2 million consumers.

"Our team is determined to return to world class levels of execution," Hackett said.

Stock analysts have consistently expressed caution about Ford stock.

Ford stock lost 14.6% in value the last three years through Feb. 3 after adjusting for dividends. In the last year, Ford stock hit a 52-week high in trading of $10.56 a share in July and a 52-week low of $8.16 in February 2019.

On Tuesday, Ford stock closed at $9.18 and plummeted more than 10% initially after the earnings announcement.

Michelle Krebs, executive analyst for Autotrader.com, said Ford saw its struggling Explorer and Escape sales offset by rising truck sales. Plus, Lincoln lowered its incentives and saw its strength grow with the Nautilus, Aviator and Corsair, she said.

China and Europe continue to present challenges.

"In the U.S., from which Ford derives the vast majority of its profits and revenues, Ford and Lincoln brand sales combined were down almost 1%" from fourth quarter 2018, despite a huge lift in Lincoln sales, Krebs said.

"Ford ended production and is in the process of winding down the Taurus, Focus and Fiesta," Krebs said. "But it wasn't just cars that caused Ford's decline. The brand-new Escape and brand-new Explorer had double-digit sales declines. Escape was down 24% and Explorer down 21%."

She continued. "Ford has struggled with the launch of the new Ford Explorer and Lincoln Aviator as well as its Interceptor police units, all built at its Chicago plant. The automaker now says it has ample supply of the both the Escape and Explorer, though it is still short on the Aviator. Interceptor police vehicles have been delayed into 2020."

"Looking ahead, Ford launches the new F-Series near year-end. It can't afford production glitches like it experienced with the Explorer," Krebs said.

Caution

"Management needs a quick turnaround in its SUV segment to alleviate operational concerns, especially in a busy product launch year for Ford." wrote David Kudla, CEO and chief investment strategist with Mainstay Capital Management, a Grand Blanc investment adviser who manages $2.5 billion in assets for clients who include many Ford employees.

"Ford's all important SUV sales suffered due to complex production issues at Ford's Chicago plant, but it appears these problems are in the rearview mirror for the Explorer," he wrote to investors. "However, given the economy Ford was handed in 2019, the operational miscues resulted in missed opportunities to the bottom line."

He noted that Ford can't take its lead in the truck segment for granted and other issues have created challenges.

"Ford has long dominated the profitable truck wars, but 2019 saw strong competition from Ram, which surged past the Chevrolet Silverado for second-place in the full-size pickup segment," Kudla wrote. "The proposed $30 million class-action settlement for defective dual-clutch transmissions on the Fiesta and Focus 2011-2016 models is an unfortunate black eye. China has been a struggle for the Big Three in 2019, and 2020 doesn't look like it will be much better. Ford China sales were down due to their outdated product lineup that doesn't seem to cater to Chinese consumers."

'Mojo' return

Adam Jonas, an analyst at Morgan Stanley, wrote to investors in January 2019, "Significant questions remain about the near-term and long-term direction of Ford's fundamentals and strategy. We believe investors must exercise extreme levels of patience with this story as it unfolds."

On Tuesday, Jonas noted that GM had grown its market share while Ford and FCA lost market share. His industry analysis did not include additional specifics related to Ford.

Meanwhile, Garrett Nelson, equity analyst at CFRA Research, upgraded his recommendation from "hold" to "buy" on Tuesday. "We think Ford is in the early stages of a turnaround and slowly 'regaining its mojo' following restructuring actions and an ongoing reshuffling of its vehicle portfolio."

Contact Phoebe Wall Howard: 313-222-6512or [email protected]. Follow her on Twitter @phoebesaid. Read more on Ford and sign up for our autos newsletter.

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