S&P Global Ratings on Monday upgraded Detroit-based legacy automaker Ford Motor Co‘s F credit rating to investment grade, despite disappointing third quarter results and uncertainty pertaining to recent workers’ union strike.
What Happened: The ratings firm raised its long-term issuer credit rating on Ford to BBB- from BB+. The company was downgraded to junk in 2020.
Last month, Fitch also upgraded Ford and Ford Credit’s debt ratings over strong financials.
“Proud of the Ford team that we're again investment-grade. That's been an objective since COVID shook our industry – an important milepost on the way to bigger things. Our balance sheet has been strong all along by design, giving us flexibility to invest in growth and creating value,” Farley said.
For the third quarter, Ford reported earnings per share of 39 cents, missing a Street consensus estimate of 45 cents. Its electric vehicle segment reported EBIT loss of $1.3 billion and the company withdrew its full year guidance citing "uncertainty" pertaining to ratification of a new workers' contract with the United Auto Workers (UAW) union.
S&P, however, is optimistic. “The stable outlook reflects our expectation that Ford’s cost reduction over the next 24 months will more than offset higher labor-related costs, losses in its Model e segment, and rising pricing pressure amidst slowing macro conditions,” it said in a statement.
The ratings firm sees Ford’s EBITDA margins touch 6.1% in 2023 owing to the impact of the recent union strike. However, it sees margins exceed 8% in 2024 and approach 9% in 2025.
“We believe there is solid traction for its highly profitable flagship products, the new Super Duty in North America and the upcoming one-tonne Transit in Europe over the next two years. These products will further cement the company’s dominance in both regions, especially given its large dealer network and addressable market to enable servicing,” the firm added.
On The EV Front: During the company’s third quarter earnings call, Ford said that it will continue to focus on combustion engine vehicles and hybrids even as it scales its EV business and delay its $12 billion EV investment.
The ratings firm, however, is positive. It expects losses in Ford’s EV segment to persist through 2025 given the recent fall in demand and views the scale back on capacity and choice of keeping the product offering mixed as a ‘slight credit positive’ over the next 1-2 years.
Ford shares are down 16.4% year-to-date as of last close.
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