Ford Motor (F) reported in-line quarterly results Wednesday after the bell.

Total revenue of $34.5 billion was down about 5% year over year and was in line with the consensus estimate on FactSet of $34.53 billion. 

Adjusted EBIT (earnings before interest and taxes, or operating income) was $2.3 billion, a beat of estimates of $2.16 billion. That put adjusted EBIT margin (operating margin) at 6.7%, topping estimates of 6.2%. 

Profit margins benefitted from increased net pricing and discipline in incentive spending, but were more than offset by higher commodity prices, a decline in product shipments, and a lower mix of pickup trucks and large SUVs. 

Adjusted earnings per share came in at $0.38, in-line with the $0.37 consensus estimate. 

Cash flow from operating activities was a negative $1.1 billion versus estimates of a positive $2.8 billion, while adjusted free cash flow was a negative $600 million vs. estimates of a positive $744 million. Free cash flow was negatively impacted by unfavorable timing differences and working capital deterioration. Essentially, Ford’s free cash flow took a big hit because it has 53,000 vehicles “on wheels” that are completed but still missing components affected by the semiconductor chip shortage.  

Breaking down the results by region

• North America revenues fell 3% year over year to $22.3 billion, higher than estimates of $21.99 billion. Adjusted EBIT was $1.591 billion, missing estimates of $1.984 billion. EBIT margin was 7.1%. 

• Europe revenues fell 2% year over year to $6.9 billion, but exceeding estimates of $5.879 billion. Adjusted EBIT was $207 million, a surprise profit with estimates looking for a $46 million loss. EBIT margin was 3%. 

• Revenue in China was $0.6 billion, representing a decline of 32% and a miss compared to an estimate of about $1 billion. Despite the lower revenues, the adjusted EBIT loss wasn’t that bad at $53 million versus estimates of a $33 million loss as cost performance improved on both a year over year and sequential basis. 

• In South America, revenues increased 33% year over year to $0.6 billion, in line with estimates of $587 million. Profitability was stronger than expected with the region posting adjusted EBIT of $50 million compared to estimates of a $1 million loss. You may recall this region has undergone a significant amount of restructuring over the past year or so into an asset-light business. These aggressive actions have helped the once money-losing region deliver three straight quarters of profitability. 

• International markets group revenue declined 23% year over year to $1.7 billion, missing estimates of $2.27 billion. The segment posted $96 million of adjusted EBIT in the quarter, missing estimates of $122 million.

• Lastly, Ford Credit EBT (earnings before taxes) was $928 million, beating estimates of $867 million. 

Reaffirmed initial outlook despite geopolitical conflicts

• Ford maintained its full-year outlook for $11.5 billion to $12.5 billion in adjusted EBIT. We think this should be viewed as positive news considering that the consensus estimate was $11.184 billion. Recall, Ford issued this guidance before the Russia-Ukraine conflict and all the geopolitical tensions that sent the stock market plunging for the past few months. Because of the uncertainties, analysts were looking for Ford to cut its outlook tonight. Therefore, it is a great victory that management had the visibility to maintain its original guide.

• Additionally, management reiterated its full-year adjusted free cash flow outlook of $5.5 billion to $6.5 billion. 

Underlying assumptions in guidance

• Improved semiconductor availability in the second half of the year.

• Full-year vehicle volumes up 10% to 15% from last year.

• Strong pricing to continue. But there is a dynamic relationship between prices and vehicle volumes. In other words, the car shortage provides Ford better pricing power, but if volumes increase then pricing should come down.

• Commodity costs up about $4 billion year over year. Back in January, this headwind was quantified at $1.5 billion to $2 billion.

• Strong EBT from Ford Credit, but lower year over year.

• Ongoing investment in the Ford+ plan.

• The outlook also assumes that disruptions in the supply chain and local vehicle manufacturing operations related to the lockdowns in China do not further deteriorate.

• Management also noted that the conflict in Ukraine has had a limited direct effect on Ford’s supply chain, but it could exacerbate broader supply issues over time. 

Other highlights 

• Targeting more than 2 million electric vehicles by the end of 2026.

• Targeting 10% company adjusted EBIT margins by 2026.

• By 2030, Ford expects electric vehicles will account for about half its global sales.

• Management would not comment on what it plans to do with its Rivian (RIVN) stake, which is valued at slightly more than $5 billion. Ford can’t sell shares until May.

Bottom line

Everyone was expecting worse for Ford, from analysts to investors who were selling the stock down ~30% YTD. We are beyond pleased to see management maintain its original full-year outlook despite cost pressures associated with commodities, challenges related to the ongoing chip shortage, and other supply chain constraints and macro uncertainties in Europe. Our bet on CEO Jim Farley and team remains intact, if not strengthened, with how they have been executing: weathering tough geopolitical tensions, improving the cost structure while simultaneously investing aggressively in its electric vehicle future. 

With shares down ~30% YTD heading into this evening’s print, which again, we attribute to analysts and investors who were expecting worse from Ford. We have reasons to believe after this print, analysts may circle back and revise up their Ford estimates. It will not be a surprise to see shares make up a great amount of what was lost to date.