Question

Ford Motor Company submits an 8-K document to the SEC which includes Ford’s outlook for certain metrics. In the data given, we see the document for the 3rd quarter 2019 date October 23. We were given Ford’s outlook for the year ended December 31, 2019. The document that follows, dated February 23 was the actual metrics for the year ended December 31, 2019. Using this information, answer the following questions. 1. At October 23, 2019, Ford forecasted (budgeted) that its adjusted free cash flow for the year would grow over the prior year. Looking at the results dated February 23, did Ford meet that forecast? Is this a favorable or unfavorable variance? 2. At October 23, 2019, Ford forecasted (budgeted) that its adjusted EBIT (earnings before income tax) would be between $6.5 - $7.0 billion. Looking at the results dated February 23, did Ford meet that forecast? Is this a favorable or unfavorable variance? 3. At October 23, 2019, Ford forecasted (budgeted) that its adjusted EPS (earnings per share) would be $1.20 - $1.32 per share. Looking at the results dated February 23, did Ford meet that forecast? Is this a favorable or unfavorable variance? 4. What is Ford’s President, Jim Hacket’s reason regarding the budget variances?

Answer 1

As we compare both the Quarterly filling of Q3 2019 dated October 23, 2019 and the Annual filling for the year 2019 dated February 23 2020, we notw that

1. Adjusted free cash flow acheived for the year 2019 is the same as the adjusted free cash flow for the year 2018 at 2.8 B$ and hence the forecast dated October 23, 2019 which expected an increase was incorrect. This is an unfavourable variance Answer

2. As per the annual filling, the Ajusted EBIT is 6.379 B$ and is below the range of $6.5-$7.0 B as predicted in the Q3 filling. Ford didnt meet its forecast and this variance is an unfavourable variance. Answer

3. As per the annual filling, the Ajusted EPS is 1.19 $ and is below the range of $1.20-$1.32 as predicted in the Q3 filling. Ford didnt meet its forecast and this variance is an unfavourable variance. Answer

4. Reasons given by the President Jim Hacket included: " the impact of lower volume, including the effects of new product launches. Costs were higher, driven by higher material and warranty costs, while structural costs, excluding pension and OPEB, were lower, primarily as a result of improved fitness and global redesign actions. Exchange was unfavorable, and other adverse impacts included UAW contract ratification costs." Answer