Standard & Poor’s raised its credit rating of Ford Motor Company and Ford Motor Credit to investment grade status this week, moving the automaker to the BBB- rating from BB+, or one full bracket closer to the coveted A-level rating. The financial services firm cited Ford’s solid performance in North America and better pension coverage as catalysts of its improved credit standing, while adding that the automaker’s recent sales gains in China, along with indicators of an improvement in what has been a catastrophic European automotive market, are evidence that that Ford’s profits are becoming more diversified globally.
Standard & Poor’s also cited continuously high demand for Ford’s highly-coveted and highly-profitable F-Series pickup line, saying that as long as the “fragile recovery” in the U.S. economy doesn’t come to an end and the housing market continues to rebound, demand for the very profitable pickups should stay consistent. S&P expects U.S. auto sales to equate to 15.6 million units in 2013 and 16.1 million in 2014, with August sales results showing proof that the market is already performing at the 16 million units-per-year level. In August, Ford U.S. sales increased 12.2 percent on a year-over-year basis to 221,270 units.
As for Ford’s balance sheet, the automaker has roughly $30 billion in cash and available credit facilities, thereby earning a “strong” liquidity rating from S&P. Overall, the financial firm expects a stable outlook, with a forecast for adjusted debt to be 2.5 times earnings before interest, taxes, depreciation, and amortization (EBITDA) and free operating cash flow to adjusted debt of 15 percent by the end of 2014. Free cash flow from automotive operations, Ford’s fundamental revenue- and profit-generating function, is expected to exceed $4 billion in 2013 and 2014.
Only a year ago in August of 2012, S&P said that hardships of the European automotive market was keeping Ford from achieving investment-grade status. But a more positive outlook for the auto market across the Atlantic seems to be having an effect on Ford’s credit rating. Ford’s stock was trading slightly lower on Friday — down $0.30, or roughly 1.73%, to $17.00.
To note, S&P competitor Moody’s increased Ford’s rating to a comparable level (Baa3) in May of 2012, while Fitch increased its rating (BBB-) a month earlier.
Update: Ford has issued an official statement on S&P’s upgrade.