Ford Motor Co. beat Wall Street expectations with its second quarter earnings report released Thursday, increasing revenue 12% to $45 billion from the same period in 2022; a net income of $1.9 billion, and adjusted earnings before interest and taxes (EBIT) of $3.8 billion.
The company touted its success with commercial customers through its Ford Pro division, which produced 22% revenue growth and EBIT that more than doubled to nearly $2.4 billion, Ford said in its news release.
Ford CEO Jim Farley compared the Ford Pro success to running a stand-alone company like John Deere. The gasoline-powered division known as Ford Blue generated $2.3 billion. Each of those divisions is expected to generate $8 billion in earnings before interest and taxes, Ford said.
Yet Ford also revealed that its Model e division devoted to building electric vehicles is losing more money than initially forecast, with $1.8 billion lost in the first half of the year. The company raised its loss forecast for the Model e division to $4.5 billion for the full year before eventually recouping profits on the venture.
Morgan Stanley analyst Adam Jonas praised Ford for being transparent about the real costs of the EV transition, unlike its competitors, he said. No one can afford to lose $40,000 per vehicle and thrive, Jonas said.
“We like our bet,” Farley said. “We think it’s competitive.”
He added, “There are plenty of customers. The issue is the price they’re willing to pay. It’s very, very lumpy. It’s not consistent across all (vehicle) segments. … “
First quarter earnings reflected a $722 million loss for Model e. Wall Street is used to startups losing money in the beginning, as Tesla and Amazon and Facebook did.
As has become a new protocol, Ford reported quarterly earnings Thursday by its three key business units instead of by global regions, such as North America, to continue showing investors more clearly the automaker’s financials as the company transitions to all-electric vehicles.
F-150 remains an economic driver
Farley touted the ongoing strength of the Ford F-150 and emphasized that the Ford full-size pickup is built only in the U.S., a claim competitors can’t and won’t make.
“The shift to powerful digital experiences and breakthrough EVs is underway and (is) going to be volatile, so being able to guide customers through and adapt to the pace of adoption are big advantages for us,” Farley said in the news release
Ford divided the company a year ago into Ford Blue (gas, hybrid), Ford Model e (electric vehicles) and Ford Pro (commercial products). Ford had previously acknowledged plans to lose billions of dollars during the transition to battery-operated vehicles.
“We’re not shying away from our EV plans,” John Lawler, chief financial officer, told reporters in a conference call after the earnings report was released. “The transition to EVs is happening. We’re in really good shape.”
Farley said the company will focus on fewer models, building loyalty and focusing on unique products.
“We are nimble,” he said. “More than 60% of Mach-E and more than half of Lightning customers are new to Ford.”
Production of electric vehicles will spike significantly over the next six months, Farley said.
Rail car issues continue to present challenges, however.
What executives have to say
The company is optimistic about its potential to sell more electric vehicles while at the same time realizing consumers want more affordable pricing, Lawler told reporters.
“We’re going to be very thoughtful,” he said.
“It was a really strong quarter,” Lawler said. “Profitable in every region Blue operates. Profitable in every region Pro operates. … Strong cash flow. I think it shows you we have really strong businesses creating profit, cash flow, we’re investing in the future with our electric business. I still believe we’re in a very good position.”
Ford reported having $5 billion cash flow from operations and $2.9 billion in adjusted free cash flow. The company reported $30 billion in cash and $47 billion in liquidity.
UAW contract talks
Ford, like its Detroit Three competitors, has just begun negotiating a new four-year contract with the UAW.
“I think it’s fair to say that there will be costs associated with a new contract, and that’s about as far as we’re going to go,” he said. “We have to plan for that. That’s part of our business.”
Farley highlighted the company’s commitment to the UAW, doing more than has been required by the labor contract in areas such as moving temporary workers to full time more quickly, and maintaining a collaborative relationship with hourly workers “based on mutual trust” and a “spirit of problem solving” with UAW leaders.
Big fat average transaction prices
Ford’s market share is essentially static but transaction prices are not, according to Cox Automotive research released Thursday:
- Ford’s average transaction price (ATP) surged to new heights, up 8% to $56,270.
- The Ford brand (ATP) was $55,803 while the Lincoln brand rose to $68,053. Bronco was up 13% to $58,131; Transit van was up 13% to $58,826.
- Lincoln’s ATP rose 5% to $68,053. The Navigator was up 4% to $105,976. The Nautilus up 3% to $57,695. The Corsair up 1% to $47,770. The Aviator ATP was down but it still remained over $70,000.
- Ford boosted its average incentive to $2,058 per vehicle, relatively low for the company compared with years past. The Ford brand saw an average incentive spend of $1,979 while Lincoln brand incentives average $4,051.
- Ford sales rose 10% year over year to 527,905 vehicles but remained far lower than pre-pandemic highs of more than 600,000 vehicles in the second quarter of 2018 and 2019.
- Ford brand sales rose 11% to 507,781 vehicles, its highest sales volume for a second quarter since 2019, when the brand sold 618,558 vehicles.
- Ford had a total market share of 12.8%. Ford brand’s share slipped 0.63 percentage points to 12.34%. Before 2021, Ford’s share was routinely near 14%. Lincoln’s share dropped to 0.49%, down 0.19 percentage points.
- The crown jewel F-Series pickups saw a 34% sales hike to 212,516 trucks. Bronco Sport, Transit, Edge, Escape, Expedition and Maverick all saw strong sales. Meanwhile, sales dropped double digits for the Bronco, Explorer and Mustang. The electric Mustang Mach-E had a 21% drop in sales to 8,633 vehicles amid a temporary factory shutdown needed to expand overall production.
- Lincoln sold only 20,124 vehicles, down 15%. For comparison, Lincoln sold nearly 28,000 vehicles during the second quarter in 2018.
- Lincoln Navigator sales jumped 20% to 4,688 units, the model’s highest second-quarter sales since 2018.
“Wall Street analysts will be more concerned about future quarters than the most recent one after Ford recently slashed the price of its electric F-150 Lightning and lowered the Mustang Mach-E price on mounting inventory outpacing demand. Ford’s pricing moves, which caused its stock price to drop, come ahead of new EV truck introductions from competitors Tesla and Chevrolet,” wrote Cox executive analysist Michelle Krebs.
Mach-E saw its average transaction price drop 3% to $57,809 as Ford modified its prices to be more competitive.
Earnings reaction
Garrett Nelson, senior equity analyst at CFRA Research, recommended shareholders “hold” their Ford stock, rather than buy or sell. He noted Ford adjusted its EBIT forecast to between $11 billion to $12 billion and adjusted free cash flow to between $6.5 billion or $7 billion.
Meanwhile, Thomas Monteiro, senior analyst at Investing.com, praised the Ford earnings report as “solid” and said it suggests good things to come in the third quarter and beyond.
“The key takeaway here is that Ford’s Q2 beat wasn’t driven solely by a stronger-than-expected U.S. economy during the period but also by the company’s clever strategy of combining new product offerings with a closer integration into the commercial market, ultimately guaranteeing a faster turnover at a time when others were suffering with sky-high inventory and labor costs,” Monteiro wrote.
“Ford was precise in terms of balancing … higher labor costs, dwindling consumer demand, increased storage costs and tougher competition, to bring healthy margins at a time of difficulty,” he wrote. “And it did it through a precisely priced product lineup, which managed to appeal equally well to commercial and retail customers, combined with sound financial management.”
GM and Stellantis
On Tuesday, General Motors reported revenue of $45 billion, up 25%, from $36 billion over the same period in 2022; net income of $2.5 billion, up 53%, from $1.6 billion; adjusted earnings before interest and taxes of $3.2 billion, up 38%, from $2.3 billion. The automaker agreed to pay nearly $792 million connected to the global recall of all models of the Chevrolet Bolt EV and Bolt EUV. The automaker also addressed its slow production of its new electric vehicles, blaming an automated equipment supplier.
More:Felony charges against Ford exec dismissed after prosecution unable to produce witnesses
On Wednesday, Jeep-maker Stellantis said it set new records for its financial results in the first half of 2023, including $12 billion U.S. in net profit. Stellantis only reports its full earnings every six months, while the other two release quarterly earnings reports.
More:Here’s what happened when UAW, Detroit Three leaders kicked off bargaining
More:Ford slashes price of all-electric F-150 Lightning trucks
More:CEO Jim Farley tells industry analysts the automaker has ‘been stuck in a box’
Contact Phoebe Wall Howard: 313-618-1034 or phoward@freepress.com. Follow her on Twitter @phoebesaid.