Ford Motors (F) Q2 2022 Earnings: Ford Posted A Better Than Expected Quarter, Hiked Dividends, Demonstrating Why We Have Been Willing To Weather A Tough Year For The Stock
Friday, 29 July 2022 7:00 PM
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Ford Motor (F) reported better-than-expected quarterly results after the closing bell Wednesday, and raised its dividend payout by 50%, helping send shares up ~15% this week in total.
Total revenue of $40.2 billion exceeded the consensus estimate on FactSet of $36.87 billion.
Adjusted EBIT (earnings before interest and taxes, or operating income) was $3.7 billion, topping estimates of $2.79 billion. That put adjusted EBIT margin (operating margin) at 9.3%, beating estimates of 7.56%.
Adjusted earnings per share came in at 68 cents per share, solidly above estimates of 45 cents per share.
Cash flow from operating activities was $2.9 billion, while adjusted free cash flow came in at $3.6 billion, helped by the profitability of its automotive operations. Both figures beat expectations and were downright impressive.
Bottom line
This was a strong quarter for Ford, demonstrating the company’s ability to execute on its near-term, day-to-day business while making strides on its electric-vehicle transformation strategy. Ford’s reaffirmed full-year outlook, despite a challenging macro environment, which also was welcome.
We’re especially pleased to see Ford’s quarterly dividend payout go back to its pre-Covid pandemic level of 15 cents per share from 10 cents, a sign of financial health. Based on Friday’s closing price, Ford’s dividend yield will jump to about 4.3%. This is a very significant increase that should help raise the stock price’s floor.
One of the reasons we’ve been happy to stay invested in the company despite the stock’s struggles this year is its dividend. The fact that Ford pays a growing dividend is a major differentiator from rivals General Motors (GM) and Tesla (TSLA). We’d been more than willing to collect the dividend while fears of a recession turned sentiment against Ford. Investors like us who were patient and kept their focus on Ford’s long-term prospects are being rewarded by this dividend increase.
Shares of Ford have correctly reflected the incredible work that the company has done to make the numbers. We remain big believers in Farley’s strategy of maximizing profits in Ford Blue (the internal-combustion engine or ICE business) while developing an exciting Ford Model e (electric vehicle) future. However, our view is that the rally has gotten too over-extended. We advise clients to make some trims, and wait for lower prices before jumping back in.
Quarterly results by region
North America automotive revenues jumped 94% year over year to $29.1 billion, exceeding estimates of $24.58 billion, according to FactSet. Adjusted EBIT was $3.27 billion, topping estimates of $2.33 billion. EBIT margin came in at 11.3%. Ford said its order bank in the region “remains robust, with nearly all 2022-model year vehicles sold out.” That includes the all-important F-150 Lightning EV, Ford said.
Europe revenues grew by 3% year over year to $5.8 billion, missing analyst expectations of $6.38 billion. Adjusted EBIT was $10 million, better than the $66 million loss that was expected.
China revenues came in at $400 million, down 20% year over year, as Covid lockdowns during the quarter were a major disruption; analysts had been looking for $474 million in China sales. Adjusted EBIT came in at a loss of $121 million, slightly worse than the FactSet estimate of negative $103 million. EBIT margin was negative 27.6%.
Revenues in South America were $700 million, up 29% and better than the estimate of $668 million in sales. The segment reported adjusted EBIT of $104 million, exceeding forecasts of negative $2 million. Ford notched its fourth straight quarter in which its South America was profitable, following a significant restructuring last year. What an incredible turn from this once money-losing operation.
International markets group revenue fell 21% year over year to $2 billion, coming in below estimates of $2.420 billion. Adjusted EBIT came in at $60 million, also missing estimates of $142 million.
Finally, Ford Credit EBT (earnings before taxes) checked in at $939 million, beating forecasts of $800 million.
Outlook
Ford maintained its full-year outlook for $11.5 billion to $12.5 billion in adjusted EBIT. At a midpoint of $12 billion, this is still higher than the consensus forecast of $11.347 billion.
Additionally, management reiterated its full-year adjusted free cash flow outlook of $5.5 billion to $6.5 billion.
Although the headwind from commodity prices was unchanged from last quarter at $4 billion, the company now sees other inflationary pressures costing the company $3 billion this year, up roughly $1 billion from management view last quarter. Ford is working to offset these increases.
Ford Credit EBT over the full year is expected to be about $3 billion.
Other highlights
Ford is still targeting a total company adjusted EBIT margin of 10%; and an 8% EBIT margin from its EVs by 2026.
Ford expects to produce 14,000 EVs globally this month and sees a clear path to reach a run rate of 60,000 EVs by the end of next year.
Through the second quarter, Ford has sold more than 3,000 E-Transits in the United States. That’s a market share of 95%.
Ford ended the quarter with a stake in the EV maker Rivian Automotive valued at $2 billion.
In an example of how great the operational turnaround here has been, from 2018 to 2021 Ford’s markets outside North America used about almost $9 billion of free cash flow. This year, those markets are collectively expected to be free cash flow positive.
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