As Justice Department Launches Ford Probe, Automaker Surprises Investors

That headline was unavoidable, by the way. On the same day Ford Motor Company released a better than expected first-quarter earnings report, it also revealed the Justice Department has opened a criminal investigation into its emissions certification process — a probe that could see fuel economy ratings rolled back.

Wall Street seemed much more interested in the financial news, however, giving the company’s stock a much-needed lift. In the Glass House, Jim Hackett must be smiling.

The testing probe has to deal with Ford’s road load calculations, an issue that came to light earlier this year when Ford launched an investigation of its own. In a filing to the U.S. Securities and Exchange Commision, the automaker warned it “cannot provide assurance that it will not have a material adverse effect.”

Ford claims the “matter currently focuses on issues relating to road load estimations, including analytical modeling and coastdown testing.”

In a statement reported by CNBC, Kim Pittel, Ford’s vice president of sustainability, environment and safety engineering, said, “Our focus is on completing our investigation and a thorough technical review of this matter and cooperating with government and regulatory agencies.”

If the automaker’s math turns out to be wonky, several unnamed models might end up saddled with new, and perhaps unfavorable, fuel economy and emissions figures. The news wasn’t enough to scare off investors, however. The company’s stock rose more than 8 percent in extended Thursday trading, and the climb continues on Friday.

What did investors see? Improved North American margins and profit, plus adjusted earnings per share of 44 cents (unadjusted: 29 cents) — a better return than the forecasted 27 cents. Ford took an axe to its overseas operations in Q1 2019, incurring one-time financial hits. Still, the overseas operating loss of $196 million was a steep climb-down from last quarter’s loss, with the company’s Europe, Middle East and Africa, and Asia-Pacific regions posting profits. South America and China made up the overseas loss. Automotive revenue of $37.24 billion outpaced forecasts, despite the company’s overall revenue falling year-over-year.

Much like in previous quarters, Ford’s bread basket continues to be North America, where earnings before interest and taxes rose to $2.2 billion from Q1 2018’s $1.9 billion. Thank Ford truck sales and an elevated Lincoln brand for that, as well as the 8.7 percent margin (up from 7.8 percent, year over year).

While Ford’s chief financial officer, Bob Shanks, claimed Q1 will probably be the company’s best quarter this year, he sees 2019 delivering “better results” than 2018. For the sake of CEO Jim Hackett, the earnings report is hopefully the start of a new chapter for Ford … and the beginning of a sustained upward trend in the company’s stock. His job depends on it.

“With a solid plan in place, we promised 2019 would be a year of action and execution for Ford, and that’s what we delivered in the first quarter,” said Jim Hackett, Ford president and CEO. “We’re pleased with the progress and the optimism that it brings.”

The coming year brings with it numerous launches of higher-margin vehicles, including the Lincoln Aviator and Corsair, and Ford Super Duty, Explorer, and Escape. The resurrected Ranger pickup went on sale in January.

[Image: Ford]