Ford’s great quarter, dividend hike are why we’re willing to weather a tough year for the stock
Ford Motor (F) reported better-than-expected quarterly results after the closing bell Wednesday, and raised its dividend payout by 50%, helping send shares more than 6% higher in extended-hours trading. Total revenue of $40.2 billion exceeded the consensus estimate on FactSet of $36.87 billion. Adjusted EBIT (earnings before interest and taxes, or operating income) was $3.7 billion, topping estimates of $2.79 billion. That put adjusted EBIT margin (operating margin) at 9.3%, beating estimates of 7.56%. Adjusted earnings per share came in at 68 cents per share, solidly above estimates of 45 cents per share. Cash flow from operating activities was $2.9 billion, while adjusted free cash flow came in at $3.6 billion, helped by the profitability of its automotive operations. Both figures beat expectations and were downright impressive. Bottom line This was a strong quarter for Ford, demonstrating the company’s ability to execute on its near-term, day-to-day business while making strides on its electric-vehicle transformation strategy. Ford’s reaffirmed full-year outlook, despite a challenging macro environment, which also was welcome. “It was a scrappy quarter,” as CEO Jim Farley explained in his interview with Jim on Wednesday’s “Mad Money .” We’re especially pleased to see Ford’s quarterly dividend payout go back to its pre-Covid pandemic level of 15 cents per share from 10 cents, a sign of financial health. Based on Wednesday’s closing price, Ford’s dividend yield will jump to about 4.55% from about 3%. This is a very significant increase that should help raise the stock price’s floor. One reason we’ve been happy to stay invested in the company despite the stock’s struggles this year is its dividend. The fact that Ford pays a growing dividend is a major differentiator from rivals General Motors (GM) and Tesla (TSLA). We’d been more than willing to collect the dividend while fears of a recession turned sentiment against Ford. Investors like us who were patient and kept their focus on Ford’s long-term prospects are being rewarded by this dividend increase. Shares of Ford were popping after hours in reaction to the strong earnings result and dividend hike. We remain big believers in Farley’s strategy of maximizing profits in Ford Blue (the internal-combustion engine or ICE business) while developing an exciting Ford Model e (electric vehicle) future, However, we recognize our price target needs to come down to better reflect market multiples. We are reducing our price target to $18 per share, which represents a more than 35% increase from Wednesday’s $13.19 close. Quarterly results by region North America automotive revenues jumped 94% year over year to $29.1 billion, exceeding estimates of $24.58 billion, according to FactSet. Adjusted EBIT was $3.27 billion, topping estimates of $2.33 billion. EBIT margin came in at 11.3%. Ford said its order bank in the region “remains robust, with nearly all 2022-model year vehicles sold out.” That includes the all-important F-150 Lightning EV, Ford said. Europe revenues grew by 3% year over year to $5.8 billion, missing analyst expectations of $6.38 billion. Adjusted EBIT was $10 million, better than the $66 million loss that was expected. China revenues came in at $400 million, down 20% year over year, as Covid lockdowns during the quarter were a major disruption; analysts had been looking for $474 million in China sales. Adjusted EBIT came in at a loss of $121 million, slightly worse than the FactSet estimate of negative $103 million. EBIT margin was negative 27.6%. Revenues in South America were $700 million, up 29% and better than the estimate of $668 million in sales. The segment reported adjusted EBIT of $104 million, exceeding forecasts of negative $2 million. Ford notched its fourth straight quarter in which its South America was profitable, following a significant restructuring last year. What an incredible turn from this once money-losing operation. International markets group revenue fell 21% year over year to $2 billion, coming in below estimates of $2.420 billion. Adjusted EBIT came in at $60 million, also missing estimates of $142 million. Finally, Ford Credit EBT (earnings before taxes) checked in at $939 million, beating forecasts of $800 million. Outlook Ford maintained its full-year outlook for $11.5 billion to $12.5 billion in adjusted EBIT. At a midpoint of $12 billion, this is still higher than the consensus forecast of $11.347 billion. Additionally, management reiterated its full-year adjusted free cash flow outlook of $5.5 billion to $6.5 billion. Although the headwind from commodity prices was unchanged from last quarter at $4 billion, the company now sees other inflationary pressures costing the company $3 billion this year, up roughly $1 billion from management view last quarter. Ford is working to offset these increases. Ford Credit EBT over the full year is expected to be about $3 billion. Other highlights Ford is still targeting a total company adjusted EBIT margin of 10%; and an 8% EBIT margin from its EVs by 2026. Ford expects to produce 14,000 EVs globally this month and sees a clear path to reach a run rate of 60,000 EVs by the end of next year. Through the second quarter, Ford has sold more than 3,000 E-Transits in the United States. That’s a market share of 95%. Ford ended the quarter with a stake in the EV maker Rivian Automotive valued at $2 billion. In an example of how great the operational turnaround here has been, from 2018 to 2021 Ford’s markets outside North America used about almost $9 billion of free cash flow. This year, those markets are collectively expected to be free cash flow positive. (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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