Mohit Oberoi
Ford (F) stock is trading sharply lower in US pre-market price action today after the company missed earnings estimates for the fourth quarter of 2022 and its CEO Jim Farley blamed poor execution.
Ford reported revenues of $44 billion in the quarter. Its automotive revenues came in at $41.8 billion which was higher than the $40.37 billion that analysts expected. The company’s adjusted EPS was $0.51 in the quarter which trailed analysts’ estimate of $0.62.
In the full year, Ford lost $2 billion which was on account of one-time items including the loss on its Rivian investment. While Amazon has maintained its stake in Rivian, Ford has sold most of the holdings and monetized the stake. There is a guide on buying Rivian stock.
Farley rued poor execution and said, “We left about $2 billion in profits on the table that were within our control, and we’re going to correct that with improved execution and performance.”
He began the earnings call by admitting “our fourth quarter and full year financial performance last year fell short of our potential.” Farley added, “to say I’m frustrated is an understatement because the year could have been so much more for us at Ford.”
Ford Stock Crashes After Earnings Miss Estimates
Ford stock is trading lower today after the earnings miss. The stock’s price action is in stark contrast to rival General Motors which impressed markets with its Q4 earnings and 2023 guidance earlier this week.
Farley also blamed higher costs and supply chain issues for the mess. Speaking with CNBC he said, “We have to change our cost profile.”
He added, “We know what we have to go after. I’d love to give you all the metrics and all the specific gaps we see. But you know, whether it’s absenteeism, the number of sequencing centers, the number of wiring harnesses we have, we know what it is.”
Under Farley, who took over the company in late 2020, Ford is working on a restructuring plan. It has exited international markets like India and ended vehicle production in Brazil as part of the process.
Ford is Working on EV Transition
Ford is meanwhile working on its EV (electric vehicle) transition and is already the second largest EV seller in the US albeit a distant second to Tesla. It has set ambitious plans for its EV business. It expects its annual EV production run rate to reach 600,000 by the end of 2023 and 2 million by 2026.
The company’s EV production run rate was 12,000 monthly in the fourth quarter and it is looking to increase it fivefold by the end of this year.
The company is looking to hit pre-tax margins of 8% in its EV vertical. Responding to analysts’ questions, Ford said that it is optimistic about the margin guidance. It added that it won’t play in low margin segments of the markets like the two-row SUV market which it termed as “commodity” like.
The company meanwhile sees pricing pressure in the US auto market this year. Earlier this week only, Ford lowered Mach-E prices between $600-$5,900 and the average price cut comes to around $4,500.
EV Price War
Ford’s price cut comes days after market leader Tesla lowered Model 3 and Model Y prices in the US and Europe. The Elon Musk-run company also lowered car prices in China, for the second time in three months.
Some Chinese companies like Xpeng Motors and BYD also cut prices after Tesla’s price cut announcements. Notably, among pure-play EV companies, only Tesla is making profits. As for legacy automakers, they don’t disclose the earnings of their EV business separately until now.
Coming back to Ford, the company announced a quarterly dividend of 15 cents along with a supplemental dividend of 65 cents. It said that in the future it wants to maintain shareholder payouts between 40-50% of its free cash flows.
Ford’s dividend yield is higher than that of General Motors. There is a list of companies that pay good dividend yields.
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This article was written for Business 2 Community by Mohit Oberoi.
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