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Ford (F) to Incur $2.2B Pre-Tax Loss in Q4 Over Pension Plans

Zacks Equity Research

Ford F recently announced that it expects to be hit by a pre-tax loss of about $2.2 billion in fourth-quarter 2019, due to pension and other post-retirement employee benefits (OPEB) obligations.

The charge is largely associated with a drop in discount rates, resulting in an increase in the amount of money to be contributed for future pension benefits, partially offset by better-than-expected returns on assets.

The $2.2-billion loss is projected to reduce Ford's net income by around $1.7 billion, after taxes. It includes a loss of $2 billion related to pension plans outside the United States and a $600-million loss associated with global OPEB plans, offset by a $400-million benefit associated with U.S. pension plans.

Including the re-measurement impact during 2019, Ford expects the under-funded pension status and OPEB plans to be $6.8 billion and $6.1 billion at the end of the year compared with the $6.3 billion and $5.6 billion reported at the end of 2018, respectively.

However, since it is a special item, the loss will not affect the adjusted profit or the adjusted profit per share. It also did not have an impact on the company's cash in 2019, and did not change its expectations for pension contributions in 2020.

Meanwhile, Ford reported total unit sales of 601,862 in the fourth quarter of 2019. This marks a year-over-year decrease of 1.3% on a volume basis, mainly due to bleak demand for passenger cars and SUVs. Notably, the company is witnessing sharp decline in sales in China amid lackluster Chinese economy and the long-standing U.S.-Sino trade tiff. Ford delivered 146,473 vehicles in the nation in the quarter, reflecting a decline of 14.7% year over year.

Shares of Ford have underperformed the industry it belongs to over the past year. During this time frame, it has increased 13.5% compared with the industry’s rise of 35.6%.

The company is actively working to introduce fresher models of autonomous and electric vehicles, which seem to be the future of the auto industry. These initiatives are likely to boost Ford’s prospects. The firm plans to produce self-driving cars by 2021. Moreover, it intends to launch 30 vehicle models in China by 2025, of which one third will be electric vehicles (EVs).

Zacks Rank & Stocks to Consider

Currently, Ford carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Auto-Tires-Trucks sector, include Blue Bird Corporation BLBD, Tesla, Inc. TSLA and SPX Corporation SPXC, each carrying a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Blue Bird has an estimated earnings growth rate of 25.47% for 2020. The company’s shares have appreciated 2.2% in a year’s time.

Tesla has a projected earnings growth rate of 6,380% for the ongoing year. Its shares have surged 95.4% over the past year.

SPX has an expected earnings growth rate of 8.09% for the current year. The stock has rallied 79% in the past year.

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