Morningstar

Ford's Q2 Better Than Guided, Improvement Expected 2021

Ford reported second-quarter results ravaged by the coronavirus that forced shutdowns, including six weeks of idle time in North America.

Securities In This Article
Ford Motor Co
(F)

Ford F reported second-quarter results ravaged by the coronavirus that forced shutdowns, including six weeks of idle time in North America. Still, the adjusted EBIT loss, including mobility and Ford Credit, of $1.9 billion came in far below the over $5 billion loss guided to in April. Management was vague as to why but did credit execution by its people and we think it is possible the over $5 billion figure assumed the worse for second quarter and instead U.S. industry volumes improved for May and June from April levels. A $1.8 billion favorable fixed cost variance year over year and $2.4 billion in pricing and cost tailwinds, mostly from North America and Europe, partially offset a $5.7 billion headwind from volume and mix. In first quarter, North America only had operating profit of $346 million, so we feared a multibillion loss in second quarter, but the segment lost $974 million. Adjusted diluted EPS of a loss of $0.35 beat the Refinitiv consensus of a $1.17 loss and we calculate the company excluding Ford Credit burned about $5.5 billion of free cash compared with a $715 million burn in the prior year’s quarter.

We see no reason to change our fair value estimate and we remain optimistic about new product driving improved results in 2021. We think the new generation F-150, due late this year sufficiently upgraded the interior and added other functions such as an onboard generator to remain competitive against GM and Ram. Ford’s move to bring three new Broncos (Bronco Sport late this year and 2-door and 4-door models next spring) to the off-road segment will likely prove to be a huge success and COO Jim Farley said the vehicle already has over 100,000 reservations, far above initial expectations. Guidance is vague given COVID-19 but management did say the third quarter will have total company adjusted EBIT between $0.5-$1.5 billion but fourth quarter and the full year will be a loss. Launch costs for the F-150 and Mach-E will be a fourth-quarter headwind.

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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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