Ford Posts Disappointing Q4 Earnings Due to Cost-Control Problems
Ford announces supplemental dividend; stock undervalued with $22 fair value estimate.
Ford Stock at a Glance
- Current Morningstar Fair Value Estimate: $22
- Ford Stock Star Rating: 4 stars
- Economic Moat Rating: None
- Moat Trend Rating: Negative
Ford Q4 Earnings Update
We and Ford’s (F) management were very frustrated with the firm’s fourth-quarter results, which had adjusted diluted earnings per share of $0.51, missing the Refinitiv consensus of $0.62, and sending the stock down 6.5% in Feb. 2 afterhours trading.
Full-year adjusted total company EBIT of $10.4 billion was well below late October guidance of $11.5 billion. Fourth-quarter earnings before income and taxes margin of 5.8% trailed GM by 300 basis points, which shows Ford still has lots to do in transforming what CEO Jim Farley calls the firm’s industrial system (product development, manufacturing, supply chain, and engineering). This change is happening slower than Farley would like and he said Ford left about $2 billion in profit on the table in 2022 for things that were within Ford’s control. Farley is right that these issues need to be corrected via improved execution, but we think he’d agree that talk is cheap and it’s time for Ford to show the market it can do better. Farley said 2023 is a year of execution and time to deliver, which we eagerly await.
We are leaving our fair value estimate in place as the firm’s 2023 EBIT guidance range is already in our model, but we will revisit all modeling assumptions after the 10-K is filed.
Ford Announces Supplemental Stock Dividend
Ford is at least paying investors to wait with an annual dividend yielding about 4.5% based on the Feb. 2 afterhours price. It also announced a $0.65 per share (about $2.6 billion) supplemental dividend payable March 1 to pay out cash proceeds from selling most of its Rivian stake throughout 2022. We calculate Ford had 10.5 million Rivian shares left at year-end worth $193.5 million. We like Ford using its ample liquidity to reward shareholders while still investing in electric vehicles. Total liquidity excluding Ford Credit was $48 billion including $32.3 billion of cash and securities. 2023 EBIT guidance is between $9 billion and $11 billion and adjusted free cash flow guidance of about $6 billion assumes no distributions to the auto business by Ford Credit.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.