Ford Motor Company (F) on Q2 2021 Results - Earnings Call Transcript
Operator: Good day, ladies and gentlemen. My name is Holly and I will be your conference operator today. At this time, I would like to welcome you to the Ford Motor Company Second Quarter 2021 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. At this time, I would like to turn the call over to Lynn Antipas Tyson, Executive Director of Investor Relations. Lynn hand it to you. Lynn Antipas Tyson: Thank you, Holly. Welcome to Ford Motor Company's Second Quarter 2021 Earnings Call. With me today are Jim Farley, our President and CEO, and John Lawler, our Chief Financial Officer. Also joining us for Q&A is Marion Harris, CEO of Ford Credit. Today's discussions include some non-GAAP references. These are reconciled to the most comparable U.S. GAAP measures in the appendix of our earnings deck. You can find the deck along with the rest of our earnings materials, as well as content from our Capital Markets Day at ford.com. Today's discussion also includes forward-looking statements about our expectations. Actual results may differ from those stated. The most significant factors that could cause actual results to differ are included on page 21. Unless otherwise noted, all comparisons are year-over-year. Company EBIT, EPS, and free cash flow are on an adjusted basis and product mix is volume weighted. A quick update on our upcoming IR events on Monday, August 2nd, Barclays will host a fireside chat with John Lawler and Drake , our Chief Operating Officer for North America. On Tuesday, August 3rd, Jefferies will host a virtual fireside chat with Alex Purdy, our Director for Business Operations for Enterprise Connectivity. And on August 11th, JPMorgan will host a virtual fireside chat with Hau Thai-Tang, our Chief Product Platform and Operations Officer. Now, I will turn the call over to Jim Farley. Jim Farley: Thank you, Lynn. Hello, everyone. And thanks for joining us today. Early in the second quarter, 2 months ago, we detailed our strategy for the future Ford. Put simply, our Ford Plus plan is focused on 2 things, really distinctive products that only Ford could do and an always-on relationship and experience for our customers that gets better and better over time. We're building on our foundational strengths, our iconic products, the uniquely appealing vehicles, our manufacturing excellence, and the industry's best captive finance company. But we're now adding new capabilities and new talents, and we're investing in new businesses that will accelerate our value we create for customers and our investors. We're committed to delivering a richer experience for our Ford and Lincoln customers, one that improves over time with things like our over-the-air software upgrades, data-driven experiences, productivity and uptime services for our critical commercial customers, charging software, and a lot more. Ford Plus also means introducing the industry's most compelling, high-volume, electric vehicle line-up and investing the capital and human resources required to design and build world-class batteries and electric powertrain components. John Lawler: Thank you, Jim. So first I want to reiterate that everything we do and every decision we're making, including capital allocation, it's squarely focused on delivering our Ford Plus plan. And you'll see that as I share our key takeaways from the quarter, our full-year outlook, and describe how we're positioned for even stronger performance heading into 2022. And as Jim said, we delivered better-than-expected results, given the semiconductor constraints. Year-over-year, our automotive business improved across several key financial metrics as we overlap the industry-wide COVID-related manufacturing shutdowns we saw in the second quarter of last year. Now, for a more accurate picture of our true trajectory in this present environment, we're focusing more on sequential comparison, and we think those are more appropriate. While wholesales were down 28% sequentially, our teams optimized from revenue and profit with disciplined incentive spending and mix management. We allocated chips to customer orders, new launches, and our more profitable vehicles. In addition, the strength of our sales order bank gives us confidence in our ability to drive a more balanced performance of wholesales, revenue, and profit in the second half of this year, including sequential improvement in wholesales and share. So let's turn to our results. On a consolidated basis, wholesales and revenue were up 18% and 38% year-over-year respectively, and we delivered adjusted EBIT of 1.1 billion with adjusted margin of 4%. Outside of North America, our underlying trajectory continues to improve despite the impact of the semiconductors and that's driven by more focused product portfolios, geographic footprint, as well as, lower costs. And Ford Credit continued to deliver strong performance with record quarterly EBT of 1.6 billion. And that's demonstrating why it's a strategic asset and critical to enabling Ford Plus. And a prime example is through the launch of a new service like Ford Pro FinSimple, which provides bundled financing for commercial vehicles, services and EV charging. And so it's another example of Ford Credit being a strategic weapon for us. Now, turning to the regions. North America posted a 40% sequential decline in wholesale due to the semiconductor shortage. Now, as we managed the chip constraints, we focused our efforts on customer or customers ordering vehicles for future delivery. We exited the second quarter with our U.S. customer sold order bank up more than seven times compared to a year ago. And with new models to come, we are clearly poised for a rebound in North America when the semiconductor supply stabilizes and aligns with demand. On a year-over-year basis, EBIT was up 1.1 billion. Outside of North America, the turnaround of our operations remains on track. Operator: Our first question comes from the line of Brian Johnson, Barclays. Brian Johnson: I got a couple of questions. First, a little bit of housekeeping. but just thinking ahead to '22. If we take the second half exit rate of 3.5 billion, but also bear in mind that your first half is typically the stronger half of the year for Ford, is there any read through for 2022? John Lawler: Hi, Brian. Thanks. Yeah. I think the way we see it is that we've got strength in the underlying performance of our business. As we head into 2022, we also know that the product lineup is going to get stronger, right? We're just launching Bronco now. We've got F-150 Lightning next year. We have Maverick next year. And we also expect that we should get to more of a full line rate on our manufacturing of all our other vehicles in new vehicles that we've had this year. So we do see strength in the product line heading into next year. But what we also see heading into next year are a few headwinds. Ford Credit, we expect that to be more normalized to our run rate that we normally see, and that's because we see auction values coming down. And then we shouldn't -- we should see our credit reserves and our credit losses normalize as well. We also see that next year as volumes increase and stocks increase across the industry, we should see some pricing moderation. Again, we also see commodities being higher next year as well. And we're going to continue to invest in our new product portfolios. We've got the launches coming in next year. We've got our Ford Plus plan. So we see that continuing as we head into next year as well. So, there are some headwinds, but the underlying strength of the business continues to be positive. And with that, we see that trajectory continuing into 22 and then on our way to the 8% EBIT margin for 23. Brian Johnson: Okay. And just a follow up, 1.5 billion 2H headwind from investments in modernization, is that something new that was planned for this year, but maybe back-end loaded due to management focusing on the chip shortage or how do you think about that? John Lawler: Well, that was planned, that's coming in. Part of that's due to the launches of the vehicle; with the launch costs comes advertising. But we're also investing in connectivity, the IT we need to put in place for the connectivity, as well as, customer experiences, digital experiences, user experiences with the vehicle. So we're continuing to invest to build out our Ford Plus plan. Jim Farley: And we're not slowing down our modernization because of the chip situation; in fact, we're doing the opposite. Brian Johnson: Okay. And a question for Jim. As you look at the order book for the F-150 Lightning and what's shaping up for the Bronco and the Maverick, any sense of how many of those customers are, as you mentioned, (ph) new to Ford, but also maybe new to that segment. So for example, SUV buyers migrating to the E Lightning due to the storage or the bi-directional charging or other features? Jim Farley: Great question. Put simply, what we've learned about our very large order bank for Lightning is way over indexed on the coast. Almost 80% are new to Ford, what’s interesting 2 out of 5 are people who are going to trade in an ICE pickup which is very important because it indicates a move little bit faster to full-size truck BEV than maybe are our optimistic assumptions. And so I would say what we've learned so far is that the customers are largely new to Ford, but they aren't new to the segment. These are customers who really like these silhouetted vehicles. What is really interesting for me is some would portray the full-size truck industry as kind of a conservative customer. It's not what we're seeing, is these very large order bank for F-150 Lightning, they're new to BEV, and they are excited to move to BEV. And they are -- more than half of them are pickup truck customers. Brian Johnson: Okay. Thank you. Operator: Next question comes from the line of Rod Lache with Wolfe Research. Rod Lache: Hi everybody. I just first wanted to clarify the answer that you gave to Brian's question. So you're going to be annualizing at 6 billion to 8 billion in the back half, and I think what a lot of people want to understand is, is that kind of a fair bridging-off point for us to think about what happens from here into 2022 and beyond. So did you assume some moderation of pricing already in that number? Is that level of investment kind of the run rate? And how should we think about the incremental benefit from that run rate for Bronco, Maverick, for the warranty improvement and some of the international improvements that you're working on? John Lawler: Hi, Rod. Thanks. So in the second half, we show the net number there for the volume net of the manufacturing production costs and other market factors. So what we are assuming is that in the second half of the year, particularly in the fourth quarter, we start to see some moderation in pricing due to the fact that we should see volumes in inventories and stocks coming up a bit. So that is something that we do have built into that number for the second half, particularly in the fourth quarter. And then when it comes to 2022, Bronco is just getting up now -- up and running now, launched now. As Jim said, we have a hefty order bank there. And then F150 Lightning Maverick, they're launching next year. So our product portfolio is strong today, it's going to be even stronger next year. And so we see that contributing to the run rate as well. So I think coming out of Capital Markets Day, we talked about the trajectory of the business. 2022 being definitely stronger than '21 as we walk towards 2023 and the 8% EBIT margin that we plan to hit. Rod Lache: And just secondly, really interesting comment about that sevenfold increase in your order bank and changing the way the vehicles are sold, can you just talk a little bit about what that actually means from a volume perspective? Because I don't think we've ever really known what your actual customer order bank actually what was the magnitude of that? Maybe you could just tell us what that number was a year ago and any thoughts on what this actually means for pricing? Obviously, it's positive, but those units are not going to land on dealer lots for very long. So it would seem that it's really not a big reason to significantly boost incentives anytime soon if they're leaving lots very quickly. Jim Farley: Thank you, Rod. Put simply, we're really committed to both going to an order based system and keeping our inventories between 50 and 60 days' supply. I've been here at Ford for 13 years. There were many years after the financial crisis where our day supply was 20, 30, 40 days. And in those years, the maximum retail order bank we had in the U.S. was 1000 to 2000 a month. We're now at 70,000 units on our way to 80,000 units. That gives you the order of magnitude difference in the way we are looking at this order bank change for the company. Lot of people in our industry are making big deal about the move online? Sure. But for Ford, we think there's massive benefit across all stakeholders for going to an order bank system. It put pressure on our industrial system to deliver quickly. It reduces our dealers costs more than just low day supplies, you mentioned. It allows us to significantly reduce our incentives. And I –guarantee you, I don't know how much money we're wasting. I know we're wasting money on incentives, I just don't know where. With an order based system, we will have much less risk of that. It requires us to dramatically reduce our order complexity as well. So there are a lot of enablers that have been put in place to move us to this new system and new go-to-market approach. I'd love to talk to you more about it, but I'll try to give you the high hard ones. Rod Lache: Thanks. Makes sense. Thanks, everybody. Operator: Our next question comes from John Murphy, Bank of America. John Murphy: I just wanted to actually follow up quickly on that. Jim, you mentioned getting back to 50 days to 60 days supply. That sounds closer to normal than not, but you're also -- the way you're describing the order bank, it looks -- sounds like 20%, 25% of your sales would be built-to-order, the horseshoes and hand grenades. So I'm just curious how you decide where that balance lands? how you keep the inventory tight, your partners to dealership, happy, and selling and creating value for you. But then also big part of the story is the tightness in the secondary market, and the used market, keeping (ph) high, which is helping the new vehicle pricing and it certainly helping out at Ford Motor Credit. So there's a seesaw effect you get the benefit on both sides. Just how do you figure out where this should land and how you actually execute on it. Jim Farley: Really good question. So the team has done a lot of work on this. I will try to answer it very simply. Our target is 50 days to 60 days supply. That means trucks will be a little bit higher. We have a lot -- about a third of our truck dealers (ph) county, 5 trucks to them could be a 100-day supply, but they need 5 trucks for the local community. And for urban and suburban dealers, it will be less than that range. Different segments will have different targets. We actually did this post-financial crisis for a few years. And then over time, (ph) discipline. And this is quite important for this management team. We have a weekly and monthly operations review, where we'll look at this very carefully by segment for each of the regions. That's the kind of soft wiring or management judgment. Going to an order bank, I would say is a hardwired way of reducing the stock. And I think it's going to take both for Ford to make this transition. It can't be just relying on management. keeping within that range. We certainly will have an exception process to go beyond that, and there will be a pretty tough discussion with our operating teams. But I think what I'm more excited about is the hardwiring of going to an order-to-delivery order system, which actually our new launches gave us that gift. Because for Bronco, and Mach-E, and some of the other high demand vehicles, we moved the reservation system into an order bank system. We then realized, my God, why don't we do this for all the vehicles, not just those vehicles. And that's when we had to put a series of incentives and more policy changes like order complexity reduction in the system to make it kind of the way we do things at Ford. I think it's going to require both changes. John Murphy: Okay. That's helpful. And just a follow-up on that, current state of affairs of retail versus fleet mix. It seems like can you talk to the dealers, is an emphasis on retail. The dealers, certainly at your level, just curious, if fleet comes back -- I mean, the demand is there, how are you balancing that – Jim Farley: Sure, it is. John Murphy: -- current days and go forward. I mean, because the demand is there, it's just some of it is getting fulfilled in the used market. They're going after auctions instead of ordering from you guys. So how do we think about that recovery go forward and where does it stand right now? Jim Farley: Really good question. So it depends on the region. Of course, we're a dominant commercial brand in multiple regions like Western Europe and the U.S., even in China in certain segments. And we're seeing in Europe a very dramatic order bank on our vans. It is -- it is something I've never seen in my career. We're talking months and months and months of back orders. So the demand for our commercial vehicles in Europe is extremely strong and the order bank is months and months. In the U.S. we're very fortunate that our commercial business is heavily focused on transit and Super Duty, and of course, F-150 is kind of mix. And so for those vehicle lines, transit and Super Duty, it's very easy to -- we don't have to prioritize between retail and commercial because those vehicle lines are almost a 100% commercial. The one that's challenging for us to balance is F-150. And we -- as you could see in this quarter, we're very carefully mix managing. But we are very respectful of the needs of our commercial customers. We know where our toast is buttered. And those customers are really important for us. In fact, we’re in discussions with them right now about the trade-off between feature content and availability. We have many commercial customers in the U.S. that have been waiting for months and months for their vehicle. And we are discussing with them, would you be willing to take off feature content to get your vehicles now? And that's -- and you can expect us to be balanced about that discussion and negotiation and compromise. And it's -- we'll make the right call for the company and for the customer. But they are pushing us for availability now, even if it means lower feature content. John Murphy: That's very helpful. Thank you. Operator: Our next question comes from the line of Adam Jonas, Morgan Stanley. Adam Jonas: Thanks. A great call so far. And Jim, I have to say, I did a Ctrl+F for the word hybrid in the and in the press release and I don't see it, man. No hybrid. It's a beautiful thing. So good. Yeah. But they're dead. They're gone. All right. My question on EVs, your BEVs. When do you think that they can be positive profit on a fully costed basis, not contribution. Like, when can they be profitable? And do you think it's 2022 is still too early for that? My first, and I have a follow-up. John Lawler: Thanks, Adam. Actually, Mach-E is profitable. Contribution margin, positive and profitable on the bottom line today. Adam Jonas: Wow. John Lawler: So we've seen strong demand for that. Yeah. So I think when we look at it over time, as we talked about , and we've talked about with you. We've got to ride that technology curve down. We've got to get to the $80 per kilowatt hour for the battery pack before the end of the decade. We've got to scale the BEV content. We have commonality, and the top hats, and other components that will help us as well. And then, of course, we need to build on our services and such to really improve the profitability of the as we move forward. But I can tell you that Mach-E is profitable today. Adam Jonas: Wow, that's incredible at 50,000 type run rate for that to be correct. Okay. My follow-on question, Jim, is about always on and the order bank. I mean, really huge. Just really interesting when you combine the order bank system with always on, where you go connect -- can engage the consumer directly for services and F&I and insurance and the OTA. But I am talking to some dealers that are freaking out. That some Darwinian forces could be at work where you're not, let's say, directly infringing on the franchise laws, but you're dancing close as you probably should given all the technological changes over the past 70 or 80 years since these laws came. So what's your message to them? What if order book goes to 80% of your units or the majority, and then the dealers are just these delivery centers? And then, you're going direct on all the other wonderful services. What's the message to the dealers? Jim Farley: Great question. Well, we're going to have a couple of different population of dealers. We are going to have our professional dealers and the answer is a little different for them versus our retail dealers. We'll have our rural dealers and the answer is a little bit different for them than suburban and urban dealers. The -- I would say the message we're giving to our team, our dealers is, look, we're going to have to work really carefully together, so -- because the customers are going to have a lot of questions on Ford BlueCruise, for example. So we want to make sure the dealers are very knowledgeable about these new OTA features, that are really meaningful in the use of the customer's life. That's one. The second one is service, service, service, service. Service. That is the most important thing for us, is wiring a closed loop between the vehicle, the condition of the vehicle, the service capacity of the dealers, and the customer is going to be the most important ballet we're going to have to play together with the dealers. This is especially true for Ford Pro. And in fact, today, we already have 160 remote trucks doing service for our commercial customers at their business. Warranty work, that's a good example of the evolution of the business model, where they're taking their Service Department from a fixed hub and going on the road with their service capacity. And those trucks have to be cooked into the vehicle data and the prognostics. Our parts legacy system to order parts and the dealers on dispatch system. That has to be a closed loop. So, all I would say to you is the orchestration and our benefit, our chance to win. Just like maybe targets, a chance to win versus online retailers is that in-person service, especially in professional customers. Operator: Our next question will come from the line of Colin Langan with Wells Fargo. Colin Langan: Great, thanks for taking my question, and congrats on a good quarter. Inventory levels. We've never seen them at these levels obviously before and obviously it's impacting your market share. Any sense of how much of that you think you could recoup and how much are you concerned may switch to other brands because people might only wait for so long? John Lawler: Yeah. Hi, Colin. It's John. So I think what we're seeing here from a market share drop is completely related to the fact that our stocks reduced so much. We have the chip issue. We lost the volumes that we lost in the second quarter. We expect that as we work to improve the run rate and through the third quarter, we're very focused on maintaining this high turn rate, filling the orders that we have. As Jim said, we're going to continue to work on retail orders. And continue to bring our customers along that way as well. So we think that we have a good chance to regain that share, especially with the strong lineup that we have. and so we see this as a temporary issue related to the chip issue and the volume and production we had in the quarter. Jim Farley: And we will not cede truck leadership to anyone. Colin Langan: Okay. touch on Connected Services. You rolled out Ford Liive in Europe on commercial vehicles. I -- I believe it's free right now. I mean, how is that rollout going? And when do you try to monetize that and get revenue out of these services? Jim Farley: Great question. So we do -- we just launched FORDLiive, as Jim mentioned, in the UK and Spain. We have 5 more EU countries covered by the end of the year to launch, so we're really excited about FORDLiive. What we've committed to so far is in the next couple of years by 2025, we expect our digital and charging revenue in Ford Pro to be about 1 billion dollars today. I wish we had more time to focus on this frankly. We have about just under 200,000 unique subscriptions for our telematics and data services. We grew at about 20,000 units in the quart -- 20,000 subscriptions in the quarter. And we feel like that digital telematics and data like fuel tank information plus adding the charging services like Electriphi for Depot charging for our customers, our high-growth area with the revenue to that level in the next couple years. The monetization of FORDLiive is really around our traditional parts business, which has very high margins and we have a very low share. So the opportunity for us upside is tremendous, post warranty. Even our commercial customers, we get very few of those customers. And so the real payoff for this closed loop is going to be much higher share post warranty of that very profitable business. Colin Langan: Thanks for taking my question. Operator: Our next question will come from the line of Ryan Brinkman with JPMorgan. Ryan Brinkman: Thanks for taking my question. One thing that especially stood out in your results, I think, is on Slide 6, where it shows that units wholesaled in the quarter rose 18% year-over-year, but that revenue was up by more than twice as much by 38%. So just a few questions around pricing and overall revenue per unit. I can see from the on Slide 9 that Net pricing helped EBIT by 1.9 billion or kind of 10% of last year's revenue, which seems suggests about the idea that half of the growth in revenue over unit volume into Q was driven by price and the other half by makes. Is that roughly correct? And what do you think the outlook is for continuing to grow revenue in excess of the change in volume? John Lawler: Yeah. Thanks, Ryan. I think pricing is the majority of what was behind that growth. We had a very strong quarter relative to pricing as we saw, our inventory shrink. And we see the strength in the underlying demand of the products that we have. And so I think I would think about it more as pricing, a little bit of mix in there, but more of it is pricing. Ryan Brinkman: Okay, very helpful. And then just as a follow-up, we saw some estimates that your incentive spending in June in the U.S., it may have fallen like 50% year-over-year, leading the decline in industry-wide incentives. I'm curious how much of the decline in incentives do you think maybe driven by hot new products like the F-150, Bronco, Bronco Sport, Mach-E, et cetera, versus how much is the function of the low inventory environment or maybe just a general inflationary environment? And to that end, it might be helpful to know if carryover pricing, which I think usually declines year-over-year, if that might also be tracking stronger and what your outlook is for incentive spending going forward, maybe in light of some of the comments you made earlier on the call about inventories and order bank, etc.? John Lawler: that's a great question. I think we've been working this as you'd expect. It's a combination of all of the above, right? We have strong products. We see continued demand for those strong products, supply is well short of that, it's allowed us to continue to keep the pricing strong and improve the pricing in the second quarter versus what we had expected. And I think as long as you see this imbalance between supply and demand, we'll continue to have stronger pricing power. As we've seen through the first quarter and the second quarter. As we go through the year, when we start to see supply and demand normalize. we'll see some of this pricing come off a little bit in the fourth quarter and then we'll have to see how that runs through next year. But given the strength of our product lineup and the demand we see, we expect to have a relatively strong pricing power for the near foreseeable future. Ryan Brinkman: Thank you. Operator: Our next question will come from the line of Joseph Spak with RBC Capital Markets. Joseph Spak: Thanks. Good afternoon. I wanted to get back to the investments in, in modernization and maybe frame that in the context of the 2023 view you laid out at the Capital Markets Day. How does that investment trend through those years as you think about the margin targets you laid out and there's an assumption that by the time you got to '23 or maybe a little bit later, there's a return on that investment, such that it becomes a neutral or even positive to the margin. John Lawler: Yes, thanks. Of course. as we make our capital allocations and we make these investments, we expect that we're going to get a return on them. And that's all part of our walk up into 2023, the 8% margin. We're also continuing to work on cost reductions elsewhere. right? These are investments that we're making in our new products with the launches and connectivity and IT. We've got advertising in there for these launches, and then, of course, customer experiences as I talked about earlier. But we're also driving cost reductions elsewhere as we continue to improve the business towards that 8% margin in 2023. So we'll invest in certain areas. We will see costs go up in certain areas, but we should also see cost coming down another areas, particularly material costs, et cetera. Jim Farley: One particular area? of modernization that doesn't I don't think get enough attention in where we're investing as a Company. Certainly 30 billion in electrification, and the vertical integration of batteries and our, of course our investment on autonomy. I think you all know about where we're spending our money in the general categories. The 1 I really want to highlight is the very significant investment in our embedded electrical architecture upgrade. This is really a significant move by Ford to not just invest in electrification, but move those products to fully digital updatable in all modules and go to a fully modern zonal electric architecture. I'm not going to go through the details, but this is a very expensive transition, but it will enable a whole new capability for the always -on experience than even today's connected vehicles like Mustang Mach-E. And I want to highlight that because it often gets lost in the other categories of investment and monetization. Joseph Spak: Okay, so just to clarify, so the EV spend is included in that bucket you mentioned? Jim Farley: Yes. Yes. So when we talk about upgrading our electric vehicles, it's much more fundamental than just the investment, and the tooling, and the engineering of the electric vehicle and its components and propulsion. It also includes a completely new approach to an embedded software and hardware system. Joseph Spak: Okay, And just -- and going back to the order bank, which is clearly interesting, that's -- it seems like an easier task, quite frankly, when you have great product like you do with the Bronco, the Mach-E, and the Lightning, which are -- seem well-received and also limited. I guess what I'm wondering is how are you going to sort of balance that with inventory as you think about like you're an explorer and your 4 or 5 of its product lifecycle or like is the plan to still keep inventories of the older products or more mature products tight such that you can still get some into the order bank or are there other plans to keep the product fresh throughout the lifecycle. That can lead to – Jim Farley: Sure. We'll have ground stock for sure in dealers. And we obviously have to keep the vehicle fresh. More and more of that will be the digital freshness of the vehicle. But I would say if you look at our 60 plus thousand unit order bank in North America, a lot of -- not all of those are Bronco s and Mustang Mach-Es. We're doing this for our whole brands. Joseph Spak: Thank you. Operator: Our next question will come from the line of Philippe Houchois with Jefferies. Philippe Houchois: Yes. Good afternoon. Thank you very much. I've got 2 questions. The first one, sorry, I'll go back on this order bank and inventory levels. To be honest, I'm a bit surprised you talking about 50 days to 60 days of inventory in the few Trump because that's done much lower than what we've had in the past. And I would've thought the order bank would actually enable to actually carry much inventory and we've seen that benefit to pricing. So I wonder if the 56 days is the first step, but do you think you can do better in the future? And along those lines and then maybe more on the Ford Credit side. But when I look at European car companies, they carry more finished products on their balance sheet, the core balance sheet. And then to be less on the Cinco balance sheet, through the dealer receivables, where you guys are proxying. It's the opposite in the U.S. And I'm just wondering if you look at a situation where you go to more order banking for your production. If you end up carrying more inventory on your Industrial balance sheet, which would increase your working capital requirement from an industrial standpoint, that was my first question. And the second one, if I can ask, briefly on China. It seems like you're stalling a bit in China, and because you've localized lot more of Lincoln, more profit able. You had big losses I before, and side before. And I'm just wondering, can you comment maybe on what is happening generally in China? Is there -- there seems to be concern about how the Chinese brands are making good progress by some of the EVs launched by your competitors are not quite getting the love from customers that was expected. And I'm just wondering if you see a more difficult environment in China for you in the balance of the year into next year. Thank you. John Lawler: Yes. I will take the working capital. Now, where we see the order bank helping us is we actually see it simplifying the industrial system because we'll know exactly what we're going to build. So we're actually working through that now and trying to use that to simplify and reduce things like working capitals. So I think if anything, it would have the opposite impact. It would increase working capital. We use it to drive down working capital. And then on the day supply. What we've seen in the past is around a 75-day supply. So 50 day, it's a 25-day reduction. so we do see that as substantial. And, of course, that'll be different across the different vehicle lines. So we do see that as a substantial pull back in the day supply. Jim Farley: And just remember, in Europe, just Ford of Europe, the cross-border issue in Europe is not so small. We have holding centers and lots of ways to manage the stock. We don't plan to implement that system in the U.S. It evolved over time and we have one country. So I think we're getting -- our intention is, as John said, is not to handle it that way. In China, the team has made tremendous progress from a $1.5 billion loss hovering around breakeven now was slightly below that. And we're in a very important time for Ford in China. Lincoln is now profitable, and we just localized those models. We only launched Lincoln in 2015. I was there. So it's a recent phenomenon. And we're just about to launch a whole plethora of brand new vehicles, like we're doing in North America today. So we're on the eve of the Mustang Mach-E launch localized, and then we have all these new vehicles, the Evos, I can go on a long list, and it will be just like what we're seeing in North America, full of freshness, and that will play out over the next couple of years. So China is very important for our profit plans. I think the team has done a tremendous job in stabilizing our sales situation and improving our cost, and now And now it's going to be a growth story in China. We're just commercializing and industrializing the vehicles as we speak. And Mustang Mach-E, it's the first major one. Thanks. Philippe Houchois: Thank you very much. Operator: And our final question for the day will come from the line of Dan Levy with Credit Suisse. Dan Levy: Hi. Good evening. Thank you for squeezing me in. First, wanted to just ask on the chip shortage and I fully recognize the situation is very fluid and your crystal ball was as good as anyone else's. But do you have a sense for how long it might take until you're no longer supply-constrained on production or something that's fully resolved, by your best guess by early next year or do you think that this -- there might be still some supply constraint lasting much longer and deeper into 2022. So just the baseline expectations around that. John Lawler: So Dan Yes, I mean, I think my guess is as good as anybody is on this. We do see that the chip issue running through this year, and we could see it bleeding into the first part of next year. But I think we won't really have a good feel for that, until later in this year. We know that, as we've had discussions with the suppliers, they're telling us they're reallocating capital, they're increasing supply for automotive et cetera. But I think this is one of those things where we need to see the release coming through before we can really feel comfortable that we're out of the woods here. Dan Levy: Great. I understand. And second question is just on ICE versus BEV. And clearly you're deemphasizing ICE, and presumably that means the investment is coming down. I assume that part of that 30 billion headline number you gave includes some reallocation from ICE to EV. But I think we also know right now that, and maybe this is just a function of the market, but ICE sales are extremely strong in the U.S.. It could remain the case for a while. So what should we expect on margin for ICE vehicles, especially as some of that investment comes down? Is it possible that the outgoing margin on some of the ICE vehicles actually increases and you could potentially run into a negative mix issue as we -- as you start to pivot from ice to the beds? Jim Farley: Yeah. It's a good question. Generally speaking, that certainly could happen. We don't know how the demand will shift. Obviously, our guess is 40% of , 240 gigawatt capacity by 2030. So we're busy making all that happen as you say, 40% is a lot -- is a lot higher than today and I think we have -- well, I know we have the right strategy for the Company. But so much of this transition is going to depend on government support, infrastructure buildout. And we need to be patient. And I think agility will become a very important skill for the Company. So far, the first inning would imply that Ford 's number 1 in sports car is Mustang, we're number one in vans with transit, we're number 1 in pickups with F-150. We're electrifying all 3 of those in the next 6 months. And so far, the demand is actually higher than we expected. So I don't know what's going to happen. We don't know what's going to happen. The support in China, but especially in Europe, has accelerated the BEV adoption in those regions. But as you say, we get into the next phase of expansion with a lot more product offering and all that capital pointed at BEV s, it's hard to say. And it's hard to handicap the government's policy at a government level. over time. I think the most important thing isn't how much money we're spending, because that's necessary -- that's enough. It is our agility and the kind of execution of our BEVs and our management of the profitability of those vehicles, and that's where we're putting our energy. The agility of our industrial system, our manufacturing, our focus on the profitability improvement and the vertical integration for key electric components, and making our vehicles different and more competitive than others. I know it's a very general answer, but I don't think we know enough to answer your question. Dan Levy: Understood. That's helpful, nevertheless. But thank you very much. Operator: Thank you. And with that, this concludes the Ford Motor Company's Second Quarter 2021 Earnings Conference Call. We'd like to thank you for your participation. You may now disconnect.
Ford Motor Company: A Strategic Investment in the EV Market
Ford Motor Company: A Value Investment in the Electric Vehicle Market
Ford Motor Company (F), recognized by The Motley Fool as one of the three ultra-cheap stocks under $100, presents an intriguing investment opportunity. Despite a slight underperformance compared to the S&P 500's 7% gains this year, Ford's modest 5% increase in stock price to around $13, coupled with its low forward price-to-earnings (P/E) multiple of 6, positions it as an attractive option for investors seeking affordable entry points into the automotive sector. This valuation is particularly compelling when contrasted with the high P/E ratios of competitors like Tesla, emphasizing Ford's potential as a value investment in the electric vehicle market.
Ford's financial health, as evidenced in the first quarter of 2024, shows a company in a state of steady growth and adaptation. With a revenue increase of 3% year-over-year to $42.8 billion and an adjusted per-share profit of $0.49 surpassing analyst expectations, Ford demonstrates resilience despite a 24% decline in net income to $1.3 billion due to rising expenses. This financial performance, combined with a generous dividend yield of 4.7%, underscores Ford's appeal as a long-term investment, especially for those interested in the burgeoning electric vehicle segment without the premium price tag associated with other brands.
However, Ford's journey is not without its challenges. The recent recall of over 242,600 Maverick trucks due to tail light illumination issues highlights the operational risks inherent in the automotive industry. This recall, necessitated by a software flaw in the Body Control Modules, could impact Ford's reputation and financials in the short term. Yet, the company's proactive approach in addressing the issue, including offering free software updates and mobile service options for affected customers, reflects a commitment to safety and customer satisfaction that could strengthen long-term investor confidence.
The current trading dynamics of Ford's stock, with a slight decrease to $12.43, reflect the market's short-term reactions to both internal and external factors. The stock's fluctuation within the day and its performance over the past year, ranging from a low of $9.63 to a high of $15.42, illustrate the volatility and opportunities within the automotive sector. With a market capitalization of approximately $48.51 billion and a significant trading volume, Ford remains a prominent player in the industry, navigating through operational challenges while capitalizing on growth opportunities, particularly in the electric vehicle market.
In summary, Ford's strategic positioning, financial performance, and proactive approach to challenges present a compelling case for investors. The company's affordable stock price, coupled with its potential in the electric vehicle space and commitment to shareholder value through dividends, makes Ford an attractive option for those looking to diversify their investment portfolios with a long-term perspective. Despite the recent recall and the slight dip in stock price, Ford's overall trajectory and business model suggest a resilient company poised for future growth.
Ford Shares Rise 3% Following Q1 Results
Ford Motor (NYSE:F) shares climbed over 3% pre-market today following the announcement of fiscal Q1/24 earnings that surpassed expectations, although revenue slightly missed projections.
The automaker reported first-quarter earnings per share (EPS) of $0.49, topping analysts' estimates of $0.42. However, revenue for the quarter was $42.8 billion, just shy of the expected $42.94 billion.
Looking forward to the full year of 2024, Ford's CFO, John Lawler, stated that the company's adjusted EBIT guidance remains stable, with anticipated results at the higher end of the $10 billion to $12 billion range.
Additionally, Ford adjusted its expectations for adjusted free cash flow upward, now forecasting between $6.5 billion and $7.5 billion, an increase from the prior estimate of $6 billion to $7 billion.
The company also narrowed its capital expenditures forecast for the year to between $8 billion and $9 billion, from a previous range of $8 billion to $9.5 billion, with spending expected to trend towards the lower end of this range.
Ford's Recall and Strategy Amid EV Market Slowdown
Ford Motor Company's Recall and Strategic Adjustments Amidst EV Market Slowdown
Ford Motor Company (F:NYSE) is currently addressing a significant recall affecting 456,565 vehicles across the United States, as mandated by the National Highway Traffic Safety Administration (NHTSA). This recall, encompassing models such as the 2021-2024 Bronco Sport SUVs and the 2022-2023 Maverick compact pickup trucks, is due to a low battery issue that could lead to a loss of drive power and malfunctioning of essential electrical accessories like hazard lights. To rectify this, Ford dealers are set to recalibrate the body control and powertrain control modules at no cost to vehicle owners. This proactive approach to addressing vehicle safety concerns is crucial for maintaining customer trust and loyalty, which can have a direct impact on the company's market performance.
In the broader context of the automotive industry, Ford, alongside General Motors (GM), is preparing to present its first-quarter results to investors. This period has been marked by a slowdown in electric vehicle (EV) growth, compounded by challenges such as global downturns in EV demand, increased competition, and rising borrowing costs in the U.S. These factors have led both companies to reassess their strategies, focusing more on their gasoline-powered vehicles, which continue to be their main profit generators. Despite these challenges, Ford's stock has shown resilience, with a slight increase to $12.085, reflecting a modest gain of $0.025 or approximately 0.21%. This stability in stock price, amidst a fluctuating market, underscores Ford's enduring appeal to investors.
Ford's financial health and market position are further highlighted by its current market capitalization of approximately $47.17 billion and a trading volume of about 26.92 million shares. The stock's performance over the past year, with fluctuations between a low of $9.63 and a high of $15.42, illustrates the dynamic nature of the automotive sector and Ford's ability to navigate it. The company's strategic focus on leveraging its combustion truck business and Ford Pro commercial vehicle operations, coupled with a cautious approach to EV investments, reflects a pragmatic response to the current market realities. By reaffirming its forecast for a core profit of $10 billion to $12 billion this year, Ford is signaling confidence in its operational strategy and financial outlook.
The automotive industry is at a crossroads, with the transition to electric vehicles presenting both opportunities and challenges. Ford's decision to slow down major electric-vehicle programs, making future EV investments contingent on profitability, is a calculated move to ensure sustainable growth. This strategy, while cautious, allows Ford to adapt to market demands and technological advancements without overextending its resources. As Ford and other automakers navigate the complexities of a shifting automotive landscape, their ability to balance innovation with financial prudence will be key to their continued success.
In conclusion, Ford's recent recall initiative and its strategic adjustments in response to the slowing EV market are indicative of the company's commitment to safety, customer satisfaction, and financial stability. By focusing on its strengths and adapting to market challenges, Ford is poised to maintain its competitive edge in the automotive industry. The slight increase in Ford's stock price, amidst these strategic maneuvers, reflects investor confidence in the company's direction and its potential for sustained growth.
Ford Motor Reports Strong Q4 Results, Shares Gain 4%
Ford Motor Company (NYSE:F) outperformed Wall Street forecasts with its fourth-quarter results and presented an optimistic outlook for the year ahead, causing its shares to rise by over 4% intra-day today.
The automaker announced adjusted earnings per share (EPS) of $0.29 on revenue of $46.00 billion, surpassing the expectations of analysts, who had projected an EPS of $0.12 on revenue of $43.04 billion.
For 2024, Ford set its sights on adjusted earnings before interest and taxes (EBIT) between $10 billion and $12 billion, with adjusted free cash flow in the range of $6 billion to $7 billion.
Ford Motor Falls 2% on UBS Downgrade
Shares of Ford Motor (NYSE:F) experienced a drop of more than 2% intra-day today. This decline followed a decision by UBS to downgrade the Detroit-based automaker's shares to a Hold rating from Buy, citing a view that the stock is now "more fairly valued."
UBS analysts, in their note, expressed a tempered outlook for Ford, indicating less optimism for the company's financial performance in the coming years. They specifically mentioned that they foresee more limited upside to Ford's earnings estimates for 2024 and 2025 than previously anticipated.
In terms of specific figures, UBS predicts Ford's earnings per share (EPS) for fiscal years 2024 and 2025 to be $1.70 and $1.65, respectively. These projections reflect a negative deviation of 4% and 12% from the current consensus.
The downgrade reflects broader industry challenges that Ford, like other automakers, is facing. These challenges include issues related to pricing, affordability, labor, and the need for significant investment, particularly in the context of transitioning to electric vehicles.
Ford Motor Reinstates Outlook, Shares Slightly Decline
Ford (NYSE:F) reinstated its financial outlook for 2023, forecasting an adjusted EBIT (Earnings Before Interest and Taxes) to be between $10.0 billion and $10.5 billion. Following this announcement, the company's shares saw a modest decline intra-day today.
The car manufacturer also revealed that its recent labor agreement with the United Auto Workers (UAW) in the U.S. is expected to bring about expenses totaling $8.8 billion over the contract's duration.
John Lawler, Ford's Chief Financial Officer, commented on the situation, noting the significant technological changes sweeping through the industry. He emphasized that some companies, both new and established, might not keep pace with these changes. Lawler affirmed the effectiveness of Ford's strategy, Ford+, highlighting the company's skilled team, disciplined capital allocation, consistent execution, and reduced cyclicality in growth and profitability.
The major cost drivers in the labor agreement are gross wages, expedited wage progression, and cost-of-living adjustments. By 2028, these factors are anticipated to add approximately $900 to the cost of each vehicle.
Ford had previously withdrawn its financial guidance for 2023 in late October due to a UAW strike affecting some of its operations in the U.S. For 2023, Ford is targeting an adjusted free cash flow in the range of $5.0 billion to $5.5 billion.
Ford Downgraded at Jefferies
Jefferies downgraded Ford (NYSE:F) from a Buy to a Hold rating and lowered their price target on the stock from $17.00 to $15.00. The decision came after Ford reported worse-than-expected losses in the electric vehicle (EV) segment and revised down their guidance for the Model e.
The analysts mentioned that while they appreciate Ford's efforts in disclosure and accountability, there seems to be no apparent change in the mid-term strategy. The focus on Gen 2 being software-centric and a concentrated line-up makes sense, but it will only become effective in 2026, leaving a less differentiated investment case in the years leading up to that point.
Ford updated its adjusted EBIT forecast to be in the range of $11-13 billion, which surpassed Jefferies' previous predictions of $9-11 billion. In response to the positive performance in H1 at Blue and the momentum at Pro, which outweighed the guided $1.5 billion deterioration in Model e, Jefferies raised its estimates to $11.9 billion, reflecting a 10% increase.
