Morningstar

Bright Spots for Ford Despite Missing Consensus

We are not changing our fair value estimate for the no-moat automaker.

Securities In This Article
Ford Motor Co
(F)

We are not changing our Ford F fair value estimate following second-quarter results that missed consensus with adjusted diluted EPS of $0.28 versus consensus of $0.31. Excluding a mark-to-market charge (required adjustment each quarter under GAAP) for the company's investment in Pivotal Software, adjusted EPS beat by a penny and would have been up $0.05 from $0.27 in second-quarter 2018. We saw bright spots in the quarter but the stock fell over 5% after hours on July 24 due to new 2019 guidance of adjusted EPS between $1.20 and $1.35 coming in well below consensus of $1.39. We had been modeling $1.32 but now model $1.21 in anticipation of further North American launch costs and third-quarter summer plant shutdowns weighing on the back half of the year. Cash and liquidity of $37.3 billion and improved free cash flow through the first half of the year gives us confidence the dividend is safe.

We understand the market's frustration with the guidance but we think Ford is moving in the right direction with many new crossover launches this year (Explorer, Escape, Aviator, Corsair) and next year (Bronco, Baby Bronco, Mustang inspired EV) along with the new generation F-150 coming in 2020. Ford's U.S. pickup business had its best second quarter in 15 years. Healthy pricing in pickups along with narrower China losses, Europe swinging to a $53 million profit from a $73 million loss, and fixed cost reductions enabled auto segment EBIT to rise 18.7% year over year and more than offset a $260 million foreign currency headwind from the euro, Argentine peso, and South African rand. North American profit was down slightly due to launch costs for new Explorer while earnings outside North America improved by 46% year over year to a $322 million loss. South America remains the most troubling foreign area, losing $205 million this quarter, and we expect poor results the rest of the year, but the Sao Bernardo truck plant closure at the end of 2019 should help next year's numbers.

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About the Author

David Whiston, CFA, CPA, CFE

Strategist
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David Whiston, CFA, CPA, CFE, is a strategist, AM Industrials, for Morningstar*. He covers stocks in the automotive industry, including dealerships, parts manufacturers, and automakers. He has covered the automotive industry since joining Morningstar in 2007. He writes stock reports, ad hoc reports, stock analyst notes, and builds discounted cash flow models for each company covered. He also assesses their economic moat and makes frequent television and print media appearances in local, national, and international news outlets. Key stocks covered include GM, Ford, CarMax, and all six publicly traded franchise auto dealers, such as AutoNation and Penske Automotive Group.

Before joining Morningstar in 2007, Whiston spent four years in PricewaterhouseCoopers’ New York real estate audit practice and one year in its Chicago office working on real estate acquisition due diligence, gaining experience around assessing an asset’s cash flow.

Whiston holds a bachelor’s degree in business administration with a concentration in accounting from the University of Richmond’s Robins School of Business. He also holds a master’s degree in business administration with concentrations in finance, economics, and organizational behavior from the University of Chicago Booth School of Business. He holds the Chartered Financial Analyst® designation, and he is a Certified Public Accountant and a Certified Fraud Examiner.

In 2012, he ranked first in the specialty retailers and services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey. He ranked first in the same industry in 2011 .

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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