Fly Intel: What to watch in auto sector earnings reports

Ford (F) is scheduled to report quarterly results after the market closes on January 23, while General Motors (GM) is scheduled to report before the market opens on February 6. What to watch for: 1. FORD OUTLOOK: When Ford reported its third quarter results on October 24, 2018, it affirmed its fiscal 2018 adjusted earnings per share outlook of $1.30-$1.50, against analyst expectations of $1.31, at that time. Ford also provided the following outlook, "Ford is also reaffirming adjusted EPS guidance for the full-year and positive cash flow that will be lower than 2017. Ford also said that as a result of the higher costs and uncertainty impacting the entire sector, coupled with unexpected deterioration this year in the Europe and China business, current company forecasts show that it will not reach its previously announced 8 percent EBIT margin or high teens ROIC targets by 2020. However, the company continues to attack costs, increase the operational fitness of the business and remains committed to hitting these targets over time." On January 16, Ford reported preliminary FY18 adjusted EPS results of $1.30, against consensus estimates of $1.33. The company also reported preliminary Q4 EPS of 30c, against analyst expectations of 32c. Ford said 2018 results also will include the impact of a non-cash pre-tax remeasurement loss of $877M related to the year-end revaluation of global pension and other post-retirement employee benefits plans, also known as pension mark-to-market adjustment. The loss was almost exclusively related to lower asset returns as a result of the deterioration in the financial markets at the end of the year. While the remeasurement generated a mark-to-market loss for accounting purposes, the company's funded pension plans remain fully funded as a result of the company's de-risking strategy. 2. GM OUTLOOK: When General Motors reported its Q3 results on October 31, 2018, it revised its FY18 adjusted EPS view to $5.80-$6.620 from $6.00, against analyst expectations of $5.89. The company added that it sees FY18 adjusted EPS at the top of the previous range with potential upside. On January 11, during GM's Capital Markets Day presentation, the company announced that it sees FY18 EPS exceeding its previous guidance of of $5.80-$6.20, against consensus estimates of $6.29 at that time. GM also said it sees FY18 adjusted automotive free cash flow exceeding the about $4B it previously projected. 3. COST REDUCTIONS: On January 10, Ford announced it will cut jobs and idle plants, as well as change its lineup, in Europe. On January 16, Ford also announced actions to reshape its regional businesses. Jim Farley, president, Global Markets, shared details of the company's major global product wave, which focuses on trucks, commercial vehicles and SUVs. "We are now beginning to see the results of our capital shift away from traditional sedans to trucks and SUVs with new utility nameplates globally, including Territory in China, Bronco, and a slightly smaller, yet-to-be named off-roader in North America," Farley said. On November 26, GM announced it will close five North American plants in 2019. GM also said it is transforming its global workforce to ensure it has the right skill sets for today and the future, while driving efficiencies through the utilization of best-in-class tools. Actions are being taken to reduce salaried and salaried contract staff by 15%, which includes 25% fewer executives to streamline decision making. 4. FORD/VOLKSWAGEN ALLIANCE: On January 15, Ford and Volkswagen (VLKAY) announced a global alliance that positions the companies to boost competitiveness and better serve customers in an era of rapid change in the industry. Volkswagen CEO Dr. Herbert Diess and Ford CEO Jim Hackett confirmed that the companies intend to develop commercial vans and medium-sized pickups for global markets beginning as early as 2022. Both companies also said they were open to considering additional vehicle programs in the future. The teams will continue working through details in the coming months. Through the alliance, Ford will engineer and build medium-sized pickups for both companies which are expected to go to market as early as 2022.