Beset by higher costs and chip shortages, Ford still manages to top estimates and maintains bright outlook

Published Wed, Apr 27 20227:37 PM EDTUpdated Wed, Apr 27 20228:03 PM EDT

Ford Motor (F) reported not-as-bad-as-feared quarterly results Wednesday after the bell. Total revenue of $34.5 billion was down about 5% year over year and was in line with the consensus estimate on FactSet of $34.53 billion. Adjusted EBIT (earnings before interest and taxes, or operating income) was $2.3 billion, a beat of estimates of $2.16 billion. That put adjusted EBIT margin (operating margin) at 6.7%, topping estimates of 6.2%. Profit margins benefitted from increased net pricing and discipline in incentive spending, but were more than offset by higher commodity prices, a decline in product shipments, and a lower mix of pickup trucks and large SUVs. Adjusted earnings per share came in at $0.38, representing a beat of one penny over the $0.37 consensus estimate. Cash flow from operating activities was a negative $1.1 billion versus estimates of a positive $2.8 billion, while adjusted free cash flow was a negative $600 million vs. estimates of a positive $744 million. Free cash flow was negatively impacted by unfavorable timing differences and working capital deterioration. Essentially, Ford's free cash flow took a big hit because it has 53,000 vehicles "on wheels" that are completed but still missing components affected by the semiconductor chip shortage. Bottom line It could have been much worse for Ford, and we are pleased to see management maintain its original full-year outlook despite cost pressures associated with commodities, challenges related to the ongoing chip shortage, and other supply chain constraints and macro uncertainties in Europe. Despite those external factors, we remain impressed with how management has been able to control what it can control: improving the cost structure while simultaneously investing aggressively in its electric vehicle future. With shares down a disappointing 31% heading into this evening's print, we are surprised to see the stock not reacting more positively to the maintained outlook. Expectations were low and many were looking for a cut, so even with a more hawkish Federal Reserve one would think these numbers were good enough to kick off a relief rally. At the time this was written, shares of Ford were gaining about 1% in after-hours trading. Breaking down the results by region North America revenues fell 3% year over year to $22.3 billion, topping estimates of $21.99 billion. Adjusted EBIT was $1.591 billion, missing estimates of $1.984 billion, meaning EBIT margin was 7.1%. In the United States, Ford ended the quarter with a customer order bank valued at $17 billion of revenue. Europe revenues fell 2% year over year to $6.9 billion, greatly exceeding estimates of $5.879 billion. Adjusted EBIT was $207 million, a surprise profit with estimates looking for a $46 million loss. EBIT margin was 3%. Revenue in China was $0.6 billion, representing a decline of 32% and a miss compared to an estimate of about $1 billion. Despite the lower revenues, the adjusted EBIT loss wasn't that bad at $53 million versus estimates of a $33 million loss as cost performance improved on both a year over year and sequential basis. In South America, revenues increased 33% year over year to $0.6 billion, in line with estimates of $587 million. Profitability was stronger than expected with the region posting adjusted EBIT of $50 million compared to estimates of a $1 million loss. You may recall this region has undergone a significant amount of restructuring over the past year or so into an asset-light business. These aggressive actions have helped the once money-losing region deliver three straight quarters of profitability. International markets group revenue declined 23% year over year to $1.7 billion, missing estimates of $2.27 billion. The segment posted $96 million of adjusted EBIT in the quarter, missing estimates of $122 million. Lastly, Ford Credit EBT (earnings before taxes) was $928 million, beating estimates of $867 million. Reaffirmed outlook Ford maintained its full-year outlook for $11.5 billion to $12.5 billion in adjusted EBIT. We think this should be viewed as positive news considering that the consensus estimate was $11.184 billion. In other words, analysts were looking for Ford to cut its outlook tonight, so it is a win that management had the visibility to maintain its original guide despite increased pressure from commodities like steel and aluminum. Additionally, management reiterated its full-year adjusted free cash flow outlook of $5.5 billion to $6.5 billion. Underlying assumptions in guidance Improved semiconductor availability in the second half of the year. Full-year vehicle volumes up 10% to 15% from last year. Strong pricing to continue. But there is a dynamic relationship between prices and vehicle volumes. In other words, the car shortage provides Ford better pricing power, but if volumes increase then pricing should come down. Commodity costs up about $4 billion year over year. Back in January, this headwind was quantified at $1.5 billion to $2 billion. Strong EBT from Ford Credit, but lower year over year. Ongoing investment in the Ford+ plan. The outlook also assumes that disruptions in the supply chain and local vehicle manufacturing operations related to the lockdowns in China do not further deteriorate. Management also noted that the conflict in Ukraine has had a limited direct effect on Ford's supply chain, but it could exacerbate broader supply issues over time. Other highlights Targeting more than 2 million electric vehicles by the end of 2026. Targeting 10% company adjusted EBIT margins by 2026. By 2030, Ford expects electric vehicles will account for about half its global sales. Management would not comment on what it plans to do with its Rivian (RIVN) stake, which is valued at slightly more than $5 billion. Ford can't sell shares during the lock-up period — the 180 days after Rivian's IPO — which expires in early May. (Jim Cramer's Charitable Trust is long F. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. 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Attendees look at the all-electric Ford F-150 Lightning pickup truck at the Washington Auto Show in Washington on Tuesday, January 25, 2022.

Bill Clark | CQ-Roll Call, Inc. | Getty Images

Ford Motor (F) reported not-as-bad-as-feared quarterly results Wednesday after the bell.

Total revenue of $34.5 billion was down about 5% year over year and was in line with the consensus estimate on FactSet of $34.53 billion.

Adjusted EBIT (earnings before interest and taxes, or operating income) was $2.3 billion, a beat of estimates of $2.16 billion. That put adjusted EBIT margin (operating margin) at 6.7%, topping estimates of 6.2%.