Summary

Ford (F) reported mixed forth-quarter results Thursday after the closing bell. Revenues of 37.7 billion was soft compared to estimates of $41.23 billion. Non-GAAP Adjusted Earnings Per Share (EPS) of 0.26 (compared to 0.34 in Q4 2020) was a big miss compared to estimates of $0.45. Non-GAAP Adjusted Earnings Before Interest And Taxes (EBIT) was 2.0 billion, a higher number when compared to $1.7 billion in Q4 2020 yet below estimates of $2.81 billion. 

For the whole year of 2021, Ford's delivered a net income of 17.9 billion, generated $2.3 billion of free cash flow on an adjusted basis. Non-GAAP adjusted EBIT was 10 billion, at the midpoint of the prior guidance range of 9.6 billion to 10.6 billion (after re-classifying Rivian gain) at a margin of 7.3%, representing the company's strongest performance since 2016. Year over year, company is clearly demonstrating a successful turnaround, compared to 2020's adjusted EBIT of just $2.5 billion. 

Full-year 2022 adjusted EBIT expected to be $11.5 billion - $12.5 billion, up 15% to 25%.

President and CEO Jim Farley said in the press release: "Financial performance is obviously critical. We’re also proud that customers see how Ford is taking EVs mainstream, and have already ordered or reserved more than 275,000 all-electric Mustang Mach-E SUVs, F-150 Lightning pickups and E-Transit commercial vehicles – and we’re breaking constraints to deliver every one of them as fast as we can.” 

Customers made Ford the No. 2 seller of electric vehicles in the U.S. in 2021, what Farley called “an important early step toward eventually being the true EV leader.”  Earlier, he said that the company will double worldwide EV manufacturing capacity to at least 600,000 by 2023 – and for fully electric vehicles to represent at least 40% of its product mix by 2030.

Metrics By Region

North American revenue was $25.8 billion (up 17% YoY), generating $1.82 billion of EBIT for an EBIT margin of 7.1 %. 

Europe's revenue was $ 5.7 billion ( -19% % YoY), generating an EBIT loss of 159 million for an EBIT margin of - 2.8%. This is a decrease of 8.6 ppts compared to Q4 2020, highlighting the progress towards a 6% EBIT margin by 2023.

China's revenue was $ 0.6 billion ( -27% % YoY), which in turn generated a loss of 150 million EBIT for an EBIT margin of -25.8 %. 

South America's revenue was $ 0.8 billion (-8 % YoY), generating a $ 36 million EBIT, for an EBIT margin of 4.5%. This was the ninth consecutive quarter of YoY EBIT improvement (16.7 ppts), highlighting the path towards growth.

International Markets Group revenue was $2.4 billion, generating EBIT of $92 million for an EBIT margin of $ 3.9% (an increase of 6.3 ppts a year ago).

Continued Investment in Ford+

Recently, Bloomberg reported that Ford continues to up its EV investment with another $20 billion to be spent training current workers to produce BEVs and to convert current factories into BEV-producing factories. The company did not confirm this on the released statement.

Guidance

Now let's talk about the company's 2022 outlook. 

For 2022, Ford issued full-year adjusted EBIT guidance of between $11.5 billion and $12.5 billion, an increase of 15% to 25% over 2021. It's worth pointing out that if Ford delivers on the high end of this range, the company will achieve its goal of an 8% EBIT margin one year ahead of their target.

Adjusted free cash flow is estimated to be between $5.5 to $6.5 billion, up from $4.59 billion in 2021 and well above estimates of $3.962 billion. Ford's ability to grow profitably and bringing in a lot of cash despite heavy investments should not be lost on investors.

Ford will report Q1 FY2022 results on Wednesday, April 27, 2022.

Bottom Line

As a result of the mixed report, Ford shares traded down ~6% in after-hour trading, after losing ~3% during the day. The misses on fourth-quarter revenue and EPS were a big negative surprise for investors. Commenting on this, CFO Lawler there may have been a large misunderstanding from analysts. Full-year 2021 results were largely in-line with company's previous guidance, so there was no surprise there. We were also disappointed that company didn't comment on the Bloomberg reported news of increased EV investments, and provide more info on what it plans to do with Rivian investment. We were also slightly disappointed that company didn't offer a more aggressive return of capital to shareholders by either increase in dividend or announce shares buyback; however, this hope was too unrealistic.

With that said, we are willing to overlook the past quarter's miss, as the company was able to guide for positive growth in EBIT for full-year 2022, in line with estimates. CEO Jim Farley and his team have been exceptional in their ability to expand and maximize profits from their ICE business, while investing heavily to pursue leadership in a BEV world.

With the stock down more than 20% from the highs made in January, and the outlook for 2022 being solid, we view this is an incredible buying opportunity for a "growth at a reasonable price" name trading at 10x 2022 earnings and 2% dividend yield.

If you're selling Ford here at $19/share, you're looking backwards (to the quarterly miss). If you're buying Ford here, you're looking forward (to a good 2022). We choose to look forward in Ford, as we have been since $12/share.

A Technical Formation To Watch Out For

Despite our fundamental thesis on Ford remains unchanged, if not stronger than before, on the technical side, we're slightly worried about the technical formation that has developed since November last year. It's building a head and shoulder formation, and if the bearish technical formation plays out, we could see stocks trade down to the 200-day moving average around $16/share.