Ford Earnings Beat Forecasts. The Stock Is Up on Guidance Boost.

Wall Street was looking for EPS of 54 cents and an operating profit of $3.2 billion from sales of $43.2 billion. In the second quarter of 2022, Ford reported EPS of 68 cents a share and an operating profit of $3.7 billion from sales of $39.4 billion.

For the full year, Ford sees operating profit coming in between $11 billion and $12 billion. The prior forecast was for a profit between $9 billion and $11 billion.

Ford stock was up 1.1% in after-hours trading after rising 0.4% in regular trading. The
S&P 500
and
Dow Jones Industrial Average
dropped 0.6% and 0.7%, respectively.

The standout division was Ford Pro, Ford’s commercial business. Sales came in at $15.6 billion, up 22% from a year earlier. Operating profit came in at $2.4 billion, up $1.5 billion.

Ford Blue, the company’s traditional car business, generated $25 billion in sales, up 5% from a year before. Operaring profit came in at $2.3 billion, down $200 million.

Ford Model e, the company’s EV division, reported $1.8 billion in sales and a loss of $1.1 billion. Comparisons to the year-ago quarter aren’t meaningful for the fledgling division.

The Model e loss was expected because making cars requires economies of scale. Auto makers need to ship a minumum of roughly 100,000 vehicles a quarter to approach profitability. Ford delivered 34,000 fully electric and hybrid vehicles in the second quarter, up from 12,000 in the first quarter.

“The shift to powerful digital experiences and breakthrough EVs is underway and going to be volatile, so being able to guide customers through and adapt to the pace of adoption are big advantages for us,” said Ford CEO Jim Farley in a news release. “Ford+ is making us more resilient, efficient and profitable, which you can see in Ford Pro’s breakout second-quarter revenue improvement [and operating profit] margin.”

Ford+ is the name for the company’s improvement plan. Investors and analysts can hear more about it and other topics affecting the industry on a conference call at 5 p.m. Eastern time.

The numbers look solid, which was probably expected by investors. On Tuesday,
General Motors
(GM) reported better-than-expected earnings and raised its full-year forecast for operating profit to a range of $12 billion to $14 billion from a prior range of $11 billion to $13 billion. 

GM’s strong numbers weren’t enough, though. Shares dropped about 3.5% in response to the company’s second-quarter report. Current earnings were fine, but investors are focused on other things, including interest rates, pricing, and labor relations.

The first two issues are making cars expensive. In the second quarter, a record 17.1% of new-car buyers in the U.S. that financed vehicles had monthly car payments north of $1,000. In the second quarter of prepandemic 2019, just 4.3% of new car buyers financing their vehicles paid more than $1,000 a month.

Higher interest rates are part of the reason payments are soaring. Prices are another. The average price of a new car in the U.S. was roughly $49,000 in June, according to Kelly Blue Book. It was about $37,000 in June 2019.

Pricing has started to weaken. Incentives for new car buyers are rising, coming in at about $2,000 a unit in June. Incentives have risen for nine consecutive months and the June figure is the highest since October 2021.

Falling prices always worry investors. “Vehicle pricing has driven much of GM’s outperformance thus far and could remain a potential source of upside over the rest of the year,” wrote Deutsche Bank analyst Emmanuel Rosner in a Wednesday report following GM’s earnings. “However, we see continued risk of price moderation heading into 2024.”

Price moderation is a risk for all auto makers, not just GM. Rosner rates GM shares at Hold and has a target of $40 for the stock.  

Then there is labor. Investors are a little nervous about negotiations with the United Auto Workers union. The current labor deal for GM, Ford, and
Stellantis
(STLA) expires in September.

Labor should be a big topic of discussion on Ford’s earnings conference call.

Coming into Thursday trading, Ford shares were up about 4% over the past 12 months. The S&P 500 and Dow were up about 14% and 10%, respectively.

Write to Al Root at [email protected]