Ford says second quarter earnings will 'surpass its expectations,' but profits to dip
Ford Motor Co. on Thursday said it now expects its adjusted earnings for the second quarter to "surpass its expectations" and be "significantly better" than a year ago, though net income is likely to be "substantially lower" compared to the second quarter of 2020.
The Dearborn automaker provided the update on its financial outlook for the second quarter, which ends in two weeks, to coincide with CEO Jim Farley's participation in a Deutsche Bank auto conference Thursday.
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After rising some 75% since the start of the year — powered by the Blue Oval's strategy for electrification, the looming arrival of its electric F-150 Lightning pickup and the success of its Mustang Mach-E — Ford's stock closed down about 1.7% Thursday to $14.77 per share.
Ford said it has seen improvements to its automotive business since it provided full-year financial guidance at the end of April, despite continuing to feel the impact of a lingering semiconductor shortage that's dragged down auto production worldwide since late last year. Those improvements are being driven by lower-than-expected costs, favorable market factors and higher vehicle auction values, the company said.
In the second quarter of 2020, when the automotive industry was still in the thick of the fallout from the coronavirus pandemic, Ford took a $1.9 billion hit to its adjusted earnings, but eked out $1.1 billion in profit thanks to a one-time, $3.5 billion gain on its investment in self-driving vehicle technology company Argo AI.
At the end of April, Ford executives forecast adjusted earnings before interest and taxes of between $5.5 billion and $6.5 billion for the year, reflecting an estimated $2.5 billion hit from the chip shortage. At that time, executives projected Ford would lose about 50% of its planned second-quarter production due to the shortage.
Farley said Thursday that cost reductions from the restructuring of some of the company's overseas operations played a large part in the improvements to the automotive business. He also credited a rise in prices for Ford vehicles, a byproduct of the company's shift to higher-margin trucks and SUVs and of high consumer demand amid the chip shortage.
As for where the crisis currently stands, Farley said the situation remains "fluid," but expects conditions to improve in the second half of the year before normalizing sometime in 2022. Even then, he said, it won't be back to business as usual for the automaker, which has in some ways benefited from having lower inventory levels on dealer lots.
Ford's second quarter, Farley noted, was significantly impacted by a fire at a chip plant in Japan that is still working to get back up to full production capacity.
“The second thing is," he said, "we are not going to redesign our product to take features out. We’re taking a very different approach to managing through the crisis. We don’t want our brand to change during the crisis, even in the name of short-term profits."
That's a reference to crosstown rival General Motors Co.'s approach to navigating the crisis. In some cases the Detroit automaker has opted to build and deliver vehicles without non-essential features that are powered by electronic modules requiring chips, such as an automatic stop/start function on some full-size 2021 trucks and SUVs.
Meanwhile, GM on Wednesday increased its previous guidance for the first half of the year, from $5.5 billion to between $8.5 billion and $9.5 billion in pre-tax profits.
Farley also provided an update on the company's new growth plan, dubbed Ford+ and unveiled to investors last month. The crux of the plan is a transition away from a business model in which customers primarily interact with the automaker on vehicle purchases to an "always-on" relationship.
"The real transformation of Ford is not just our base profitability, getting to 8% [margins]. It's not just the modernization of the company to e-mobility," said Farley. "The biggest change at Ford is going from an episodic relationship with the customer to every day surprising them with physical and digital connected services."
Ford has told investors it expects to electrify 40% of its global lineup by 2030. But based on the early interest consumers have shown in forthcoming electric vehicles such as F-150 Lightning, Farley said, EV adoption might move faster than the company had expected.
Farley also pointed to government incentives as being key to the EV transition, pointing to more rapid adoption in Europe as an example.
"Our view is pretty simple, which is we really encourage the [Biden] administration to put [in place] incentives to help customers move to this new technology," he said. "But we don’t want to leave labor behind. It’s very important in our view that the vehicles built in the U.S. or built [in] North America, but especially in the U.S., are considered differently than those that aren’t.”
The company also provided the latest number of orders and reservations it's gotten for a spate of new vehicles it's in the midst of launching.
Reservations for the full-size Bronco SUV, which began deliveries earlier this week, now stand at 190,000, with 125,000 of those converted to orders. The battery-electric F-150 Lightning, which Ford unveiled last month, now has 100,000 reservations. The just-announced Maverick compact pickup truck has gotten 36,000 reservations. And the forthcoming all-electric E-Transit commercial van has gotten 20,000.
Ford is scheduled to release second-quarter financial results, including guidance for the second half of the year, July 28.