Wall Street sours on Hackett's Ford

DETROIT — To hear Wall Street tell it, Ford Motor Co. is in dire straits.

Ford shares last week fell under $11, lower than when Jim Hackett became CEO last May, despite big gains for the broader market in those eight months. Ford's earnings outlook for the year dimmed in light of lower-than-expected 2017 results. And the company has been put on notice that, unless it can point to clear progress soon, its credit rating could slip to just one level above junk status, a threshold with both symbolic and financial consequences.

It's a mind-boggling turn of fortunes for the nation's second-largest automaker, which had emerged from the industry's downturn with significant momentum and posted record earnings in 2015 and 2016. Ford still is making billions of dollars and posting healthy sales figures, but the drumbeat of negative news has seemingly wiped away any of the shine that remained from being the only Detroit automaker to avoid bankruptcy.

Ford, since Hackett took over, has readily admitted its faults — a lack of "competitive fitness," as Hackett puts it — and said it has a plan to pump up profit margins by the end of the decade. But analysts and investors say Ford has been too stingy with the details needed to generate enthusiasm about its prospects. As a result, the market is punishing Ford while viewing rivals — particularly General Motors, whose shares hit a record high late last year — more favorably.

"When a CEO comes out and says it's going to be a bad year, that's not going to instill confidence in investors," David Kudla, CEO of Mainstay Capital Management in Grand Blanc, Mich., told Automotive News. "There hasn't been the data or the narrative to instill confidence. It's created uncertainty around what success at Ford can be."

Moody's Investors Service, which downgraded Ford's credit outlook to negative from stable last week, said the automaker had "allowed an erosion in many of the operating disciplines that it established following the 2009 restructuring of the North American auto sector."

Hackett admitted as much in October, saying Ford hasn't "grown revenue and volume to the degree that we had planned coming out of that recession. Good news is revenue did grow, but so did our costs."

Moody's said Ford's challenge is to allocate capital in the right way across what it calls a growing number of "potential investment opportunities," including certain geographic markets, vehicle categories, joint ventures or partnerships and mobility business models. It said there is little potential to upgrade Ford's rating before 2021.

Ford countered those concerns with an emailed statement saying the company "has delivered year after year of solid financial results" since the recession. "We continue our intense focus on improving the operational fitness of the business to deliver stronger results while building toward our vision of the future," the statement said. "We're confident that as these fitness actions take hold, the market will recognize our progress."

Stephanie Brinley, a senior analyst with IHS Markit, said some of how the market views Ford stems from how it has communicated — or failed to communicate — its plans.

"Part of it comes down to messaging," she said in an interview. "Their forward strategy for mobility came out slow compared to some other automakers."

Hackett has called for a sweeping restructuring of the business, including $14 billion in cost cuts and a major shift in investment from cars to light trucks. But those initiatives won't pay off for a few years, and Hackett has declined to elaborate on some aspects of the plan.

"We may need to wait 18-24 months before the Ford story is exciting again," Barclays analyst Brian Johnson wrote Jan. 25, after Ford posted a $2.4 billion fourth-quarter profit but lowered its earnings projections for 2018.

Hackett, on a conference call to discuss the earnings, declined to elaborate on six recently implemented fitness initiatives, which irked Morgan Stanley analyst Adam Jonas.

"You're clearly not wanting to talk about them," Jonas said. "That's a problem, Jim. How long do we have to wait?"

Hackett promised Ford would reveal more details this year, but not before communicating them to Ford employees.

"He's been there for eight months now," Kudla said. "Maybe the jury's still out, but he's got to get moving."

Helping Ford's cause will be the introduction this year of 23 new or freshened vehicles globally, more than twice as many as in 2017. Those include 11 vehicles in North America.

It's important to note, Brinley said, that Ford — which in 2012 reclaimed its Blue Oval logo and other assets it had mortgaged to obtain a lifesaving credit line in 2006 — is still in a good position relative to its last round of trouble. Ford's per-share guidance for 2018 translates to earnings of $8 billion to $9.2 billion, according to Barclays, down from an initial forecast of $9.9 billion.

"You're not looking at a company that's about to start losing money," Brinley said. "It's just a question of what those profit margins are."