Ford Earnings: What to Look For From F

Ford Motor Co.’s (F) is undergoing a major transformation under Chief Executive Officer (CEO) Jim Farley, trimming operations in some areas while expanding in others. Ford recently announced that it would take $2 billion in charges and shut its factories in India, which it once saw as a potential top market. Also, Ford staged a major coup when it recently hired the head of Apple Inc.’s (AAPL) car project, advancing Ford’s $22 billion plan for new car technologies, including electric vehicle offerings.

Investors will focus on the long-term impact of these developments, as well as the short-term impact of the global semiconductor shortage, when Ford reports earnings after the market close on Oct. 27, 2021 for Q3 FY 2020. Investors may see signs for caution. Analysts expect the company to report a steep decline in adjusted earnings per share (EPS) and a slight YOY drop in revenue.

Investors also will focus on a key Ford metric, North American car sales. North America is Ford’s largest and most profitable market, and this metric is an important indicator of how Ford has kept up with increasing car demand as the pandemic has waned. In Q3 FY 2021, analysts estimate that North American cars fell sharply after rebounding in Q2.

Ford shares struggled to maintain growth relative to the broader market in the last two months of 2020, pulling ahead of the S&P 500 in November but then dipping below around the start of 2021. Since early in January, though, Ford stock has staged a significant rally, climbing to an initial high in June 2021 and then topping that with a new high in October. The stock has provided a 1-year trailing total return of 99.3%, far ahead of 34.3% for the S&P 500.

Ford Earnings History

Ford’s overall performance has been volatile due to the COVID-19 pandemic and production disruptions related to the global semiconductor shortage. The company posted two quarters of adjusted losses per share, in Q1 and Q2 FY 2020, before returning to positive adjusted EPS in Q3 FY 2020. The initial rebound in adjusted EPS was sizable, with Ford reporting four straight quarters of positive adjusted EPS from Q3 FY 2020 through Q2 FY 2021. But that may change dramatically in Q3 FY 2021. Analysts estimate that adjusted EPS will plunge 60.2% YOY.

Ford also has faced a major challenge in growing revenue in recent years. The company reported six consecutive quarters of YOY revenue declines from Q1 FY 2019 through Q2 FY 2020, then another YOY decline in Q4 FY 2020. This trend reversed the first two quarters of this year, especially in Q2 when Ford reported a 38.1% increase in revenue. But for Q3 FY 2021, analysts expect a 2.3% YOY decline in revenue.

Source: Visible Alpha

The Key Metric

As mentioned, investors also will closely watch Ford’s total North American car sales. Demand for cars in North America has surged as the region has emerged from the worst of the COVID-19 pandemic. As mentioned, another major issue has been supply chain issues in recent months, and automakers are using semiconductors in their vehicles more than ever before. The global semiconductor shortage has halted or delayed car production, forcing Ford and other automakers to struggle to keep up with demand. Because North America is Ford’s primary market, the company’s success at matching car demand in this area is a strong indicator of its overall capacity as the broader economy continues to recover from the pandemic.

Unfortunately, analyst estimates for Ford’s North American cars sold in Q3 FY 2021 are not promising. They estimate that Ford will report a 12.7% YOY decline following 20.2% YOY growth in Q2. Including Q2, Ford has reported rising North American cars sales in only four of the past 18 quarters back to Q1 FY 2017. The estimated decline in Q3 FY 2021 would be the smallest sales decline since early 2020. But it suggests that the economic disruption related to the pandemic, including supply chain challenges, continue to weigh on Ford’s performance.