From F-150 EV to chip shortage: What investors should know ahead of Ford earnings

Published Tue, Jul 27 20212:42 PM EDTUpdated Tue, Jul 27 20214:17 PM EDT

DETROIT – Ford Motor last month promised that its operating profit for the second quarter would "surpass its expectations," but whether those results will be enough to impress Wall Street will be determined Wednesday. Ford is projected to report a second-quarter loss of 3 cents a share and $24.23 billion in automotive revenue, according to Refinitiv estimates. That revenue would be a 45.8% increase compared with a year earlier, when the coronavirus caused shutdowns of its North American plants. The potential loss follows Ford saying its adjusted pretax earnings for the second quarter would top its expectations and be "significantly better than a year earlier," while net income would be "substantially lower" than the same period last year. The company reported a net profit of $1.1 billion and an adjusted pretax loss of $1.9 billion during the second quarter of 2020. The first half of the year has been better than many expected for automakers. Supply constraints due to the parts problem such as semiconductor chips have led to higher vehicle prices and profits. However, it remains unclear how the second half of the year will play out. In April, Ford forecasted its adjusted pretax profit for the year to range from $5.5 billion to $6.5 billion, including an adverse effect of about $2.5 billion from the semiconductor shortage. That impact was the high end of a previously guided loss due to the problem. Outside of Ford's earnings and any change to guidance, Wall Street analysts will be looking for updates on CEO Jim Farley's Ford+ turnaround plan , the semiconductor chip shortage and new product launches. Here are more details on those issues as well as other things investors should know about ahead of Ford reporting its results after the markets close Wednesday. Semiconductor chips Ford expected the second quarter to be the low point regarding the semiconductor chip shortage, but the problem is far from over. What some industry experts previously categorized as a short-term issue is expected to last until 2022, if not longer. At the end of last month, Ford significantly cut its North American vehicle production through July due to the parts shortage. Ford previously said it had expected to lose about 50% of its vehicle production during the quarter. "This is a scramble to get the modules into the vehicles, the second half even," Farley said last month, adding that a "normal" supply of vehicles isn't expected until 2022. Whether Ford was able to save any of that production in the second quarter and how much, if any, it will be able to recoup during the second half of the year will be main focuses of analysts and investors. Ford Credit Ford Credit, the automaker's captive finance arm, has assisted in easing losses due to the semiconductor chip shortage. It has been a major tailwind for the company this year, as vehicle prices and financing reach record levels because of the low supply of vehicles due to the chip shortage. Farley cited Ford Credit as one of the reasons the company expected to have a better-than-expected quarter from April through June. It's something investors and analysts are keeping an eye on. The financial arm earned $962 million in the first quarter before interest and taxes. BlueCruise General Motors and its majority-owned autonomous vehicle subsidiary Cruise filed a lawsuit last week to stop Ford from using the name "BlueCruise" to market its hands-free driving technology. America's largest automaker said Ford's use of the BlueCruise name infringed on GM's Super Cruise trademark, as well as Cruise's trademark. Ford called the lawsuit "meritless and frivolous." The company said in a statement: "Drivers for decades have understood what cruise control is, every automaker offers it, and 'cruise' is common shorthand for the capability. That's why BlueCruise was chosen as the name for the Blue Oval's next evolution of Ford's Intelligent Adaptive Cruise Control, which incorporates hands-free Blue Zones and other advanced cruise-control features." While not critical to earnings, it's a symbol of the competitiveness between America's two largest automakers. Ford is expected to launch the system later this year on the Mustang Mach-E electric crossover and Ford F-150. Products Despite the coronavirus pandemic and chip shortage, Ford has pushed through launches of some of its most important products in the past year or so. The launches have ranged from the Mach-E and redesigned F-150 to two new Bronco models, including the recently launched "big Bronco" SUV. It also unveiled and started taking reservations for an all-electric version of its F-150 pickup, which is expected to arrive by mid-next year. Ford earlier this month said it had received more than 100,000 reservations for its electric F-150 Lightning pickup since the vehicle's debut in mid-May. Any updates on reservations as well as production of key vehicles will be important for the company during the back half of the year. Ford+ No, Ford+ is not an automotive streaming service. It's Ford's new turnaround plan, which Farley and other executives detailed at an investor event in May. Analysts and investors will be looking for any progress on the plan, including turning around its international operations and expanding into emerging markets such as connected vehicles and subscription services. Under Farley's Ford+ plan, the company said it hopes to achieve an 8% adjusted profit margin before interest and taxes in 2023. Farley's predecessors, Jim Hackett and Mark Fields, promised the same, but it never materialized. Ford's stock reached a new 52-week high during the investor day. Shares of the automaker are up nearly 60% this year to about $14.

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