Ford's reorganization plans showed up in its fourth-quarter earnings Wednesday as pension and layoff costs eroded the company's profit and caused it to miss earnings estimates — despite posting stronger-than-expected sales.
The Detroit automaker has been struggling overseas, and that was apparent in the fourth quarter. While Ford grew its revenue in North America by $1.7 billion, it fell in every other region across the globe. It lost market share in every major market in South America except Peru. Unfavorable exchange rates and a drop in sales volume also hurt Ford's bottom line, especially in Europe and Asia.
Ford also faced pressure on several other fronts during the quarter and last year, executives said. Tariffs cost the automaker $750 million in 2018 while higher commodities prices shaved $1.1 billion from its bottom line. It also took a $750 million hit last year from unfavorable foreign exchange rates and ate $775 million in costs related to recalls announced last year in North America, Chief Financial Officer Bob Shanks told analysts on a conference call discussing the results.
"Certainly it's been a challenging year," CEO Jim Hackett said on the call. He noted "headwinds outside of our control and frankly, poor performance in some parts of the business which we have now taken action to address."
Hackett said Ford laid the foundation last year "for a much stronger, more resilient and more dynamic business. A business that we want to tell you can thrive now and in the future."
Here's how the company did compared with what Wall Street expected, based on average estimates compiled by Refinitiv:
— Adjusted earnings per share of 30 cents vs. a forecast of 32 cents per share
— Automotive segment revenue: $38.7 billion vs. a forecast of $36.88 billion
Ford took a $1.18 billion charge for "special items" that were excluded from its adjusted earnings. The charges stem mostly from pension and layoff costs. On an unadjusted basis, Ford lost $116 million, or 3 cents a share, during the fourth quarter. It generated a profit of $2.52 billion, or 63 cents per share, a year earlier.
The company's total revenue was $41.8 billion during the quarter, slightly higher than its $41.3 billion in revenue during the same quarter last year.
"While 2018 was a challenging year, we put in place key building blocks to build a more resilient and competitive business model that can thrive no matter the economic environment," Shanks said in a statement.
Despite the losses, Ford expects to be able to fully fund its business and capital needs in 2019, while keeping cash and liquidity at or above target levels, Shanks said.
On an adjusted basis, the company earned 30 cents a share, which missed analyst expectations of 32 cents per share, according to analysts surveyed by Refinitiv. It was also less than the 39 cents a share the company reported in the same quarter of 2017.
Ford's shares have been under pressure all year, tumbling by about 22 percent over the last 12 month, closing at $8.34 a share Wednesday.
The automaker is undergoing an $11 billion restructuring plan that has so far involved trimming back international operations, making investments in new mobility technologies, and realigning its portfolio around more profitable vehicles.
That strategy includes doubling down on segments where Ford has historically been strongest — trucks, utilities, and muscle cars. The automaker unveiled a refreshed version of its best-selling Explorer sport utility vehicle at the Detroit auto show and is also broadening its Mustang lineup.
Ford also said it is partnering with German automaker Volkswagen on a number of initiatives, shortly after announcing job cuts across its European operations. The first agreement the two firms signed appeared to benefit VW more than Ford, said Jeffries analyst Philippe Houchois. But it allows Ford to remain in its most profitable businesses in Europe while cutting costs and pulling out of areas where it is failing.
"The issue that Ford has had around the world is that everywhere they operate, Ford's business is a mix of good and bad," Houchois said in an interview Tuesday. Ford's position in Europe is different from that of rival General Motors, which decided nothing in Europe was worth salvaging when it sold its operations in the region to French automaker Groupe PSA.
"For Ford it is more complicated," Houchois said. Ford's commercial van business is significantly smaller than its F-150 pickup truck franchise, but it's probably the company's second-most profitable product and its market share in Europe is key. "So they can't just pull out of Europe. They have to find ways of being sustainable there, which is more complicated, but could have some benefit long term."