Credit & Capital

Moody’s Deals a Blow to Ford With Credit Downgrade

The automaker's lackluster performance in profit margin and free cash flow leads the credit rating agency to relegate Ford's debt to junk status.
David McCannSeptember 10, 2019

Ford Motor shares were down about 3% early Tuesday afternoon, following a late-Monday downgrade of its debt to junk status by Moody’s Investors Service.

While the auto industry has recently been generally healthy, Ford is an exception. Moody’s projects that the company’s EBITDA margin will fall this year to 1.2%. That would be a fourth consecutive down year since 2015, when Ford’s EBITDA margin was 4.7%.

Additionally, Ford’s free cash flow sank into negative territory in 2018, and Moody’s expects that key metric to remain under water at least through 2020. “An upgrade of Ford during the near term is unlikely,” the credit rating agency said in a report on Monday.

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Moody’s blamed the downgrade partly on Ford’s “lengthy and costly” restructuring program. It’s expected to continue for several more years and to result in $11 billion in charges plus a cash cost of approximately $7 billion.

“Ford is undertaking this restructuring from a weak position, as measures of cash flow and profit margins are below our expectations, and below the performance of investment-grade-rated auto peers,” Moody’s said.

The report did allow that Ford’s current initiatives “will contribute to gradual improvements in the company’s earnings, margins, and cash generation, albeit over a number of years.” Such initiatives notably include its “Global Redesign,” a diverse strategy focused on high-growth product segments, electric and autonomous vehicles, and operational improvements.

Also, Moody’s noted that Ford’s $23.2 billion of cash exceeds its debt, enabling the company to fund the restructuring as well as new product development.

Ford announced in June that it would cut 12,000 jobs in Europe by the end of 2020. That news came a month after the company revealed plans to cut 7,000 white collar jobs, or about 10% of its salaried staff worldwide.

In other Ford news this year, Bob Shanks, the company’s CFO since 2012, retired in June after 42 years with the automaker. His replacement is former longtime Amazon executive Tim Stone.

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