05 February 2020 by jbchevrel
Ford Co (F) and Ford motor credit co LLC (FMCC) under-performed in US IG CDS universe today, wider by +9 and +6 resp., as lower production volumes in North America (NA) weighed on Q4 numbers and the company guided to a disappointing 2020 outlook. the stock of F also lost in the area of 10%. F CDS is thus catching up, almost back as the widest name in CDX IG s33. Indeed Macy’s (FD) was tighter -12 thanks to reported plans to close 125 of its least productive department stores over 3 years and cut 2,000 jobs. F is targeting EBIT of just $5.6–6.6B vs $6.4B last year. Adding to that already low range, it is not meant to factor in any assumptions for impacts from the corona virus (noteworthy - although today’s market doesn’t seem to care too much about this anymore). Automotive revenue dropped 5% YoY while EBIT margin dropped by an absolute -2.3%. Those declines reflect lower volumes in NA due to 1/ problems with new models launches A/ Explorer SUV B/ Escape SUV C/ Super Duty pickup truck especially 2/ higher warranty costs 3/ bonus payment to UAW workers. Other than the US, F trimmed China losses and printed a small profit in Europe but still, the bulk of auto EBIT comes from NA (+$700M), RoW reported combined losses of close to -$500M. FMCC operating profit dropped -5%, largely due to lower receivables, although worth mentioning those were partially offset by a solid credit loss performance. In particular looking at 60 day + delinquencies (0.1% and unchanged QaQ) and repossessions (1.3% and unchanged QoQ) in the US retail portfolio, it looks like the credit losses remain low. Benefitting from the macro. This is in an environment were the US consumer is relatively strong. Several risks remain on the horizon. In particular 1/ execution risks in the turnaround strategy and product roll-outs 2/ impact from the coronavirus on the China business. I reckon those risks would have to materialise for us to say any action on the ratings. In the near term, the consensus is for rating stability at Moody’s and S&P in particular, and the outlooks there are both stable. So the base case is it’s going to stay Ba1 BBB- BBB.