Does Ford Motor Co. (F) need a restructuring?
That's the question one company follower had on his mind during Ford's third quarter conference call Thursday morning.
"Sometimes, when you have big changes of strategy, big management changes and fundamental pivots in the direction of the organization long-term, when you reassess fitness, in this industry, at least, there's quite a lot of precedence of restructuring actions be it asset write-downs, head count adjustments, et cetera. Does Ford need anything like that?" Morgan Stanley analyst Adam Jonas said.
As with much of the call's Q&A session, Jonas wasn't met with much in the way of a detailed response.
"... I think in that bucket and consistent with what we've said since 2010, we will aggressively restructure the business as required to achieve the objectives that we've set out to achieve," CFO Bob Shanks said in reply. "So, nothing specific and certainly nothing related to those two [cost reduction initiatives] we talked about in New York. But we're always open and prepared to do what we have to do."
In saying "nothing specific," Shanks was referring to the $10 billion of material cost reductions and $4 billion of engineering cost reductions Ford promised last month at an analyst day in New York.
Questions have arisen since the New York conference concerning details on the company's strategic plan, and CEO Jim Hackett addressed that to some degree on the call Thursday.
"... The fitness has two heads to it. There's a near-term and a longer term," Hackett said of his plan to reshape Ford. "You and I are talking about the longer term effort and we've identified executives reporting to me directly and this small team that I have that's running the whole company sits in terms of review. There are six work streams that have been identified and definite goals and targets for improvement.
"Now, you could ask a fair question is, okay, when are you going to give us that? The answer is they're working on the design of the should-be state of these new ideas. So, think of the fitness as both a test of efficiency but also effectiveness."
Hackett, who recently completed a 100 day review of the company since taking the helm as CEO in May, said one example of creating a more fit company comes from the nature of the way enterprise computing systems drive factories and the way that configuration of products inform the factory about what to build.
"In companies of our age, those over time evolved into very complex systems in there," Hackett explained. "And so, if you were doing a start-up today, like, let's say an electric car company, you don't have the money for a system like that, so you buy a really simple order management system, and it's a lot leaner, and it moves faster.
"So, what Ford has to do is stare back now with the history of that system and make it modern. And these are the kinds of things I know how to do, and they create tremendous value in terms of reducing work-in-process capital. And they're going to improve warranty performance because of order errors and things like that. So, that's just a small example of what sits in projects like that."
Prior to the 9 a.m. call Thursday, the No. 2 U.S. automaker reported strong earnings, largely driven by a record $289 million pretax profit in Asia and a strong performance in North America. The company also touted its credit business, where it now expects $2 billion pre-tax profit for the year.
On the call, Shanks said the majority of Ford's year-over-year profit improvement in the Asia-Pacific region was driven by consolidated operations outside of China, where not too long ago it was considering restructuring those businesses.
"So, I feel fantastic about what the team was able to do as they set their focus on that. ... therefore, it gives me confidence as we look at China, as Jim says," he opined. "I mean it's a huge operation. And I think we see enormous opportunities to improve the overall business performance in Asia-Pacific by sustaining what we've delivered in the consolidated operations and really going after the opportunities that we have in China."
Ford reported adjusted earnings of 43 cents a share on Thursday, topping analysts' expectations of 33 cents, according to FactSet. The Michigan-based company had revenue of $36.5 billion, which also bested analysts' forecast of $33 billion.
--Kinsey Grant contributed to this report.
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