Ford’s Q1 Results Were Mixed, But The Outlook Is Strong

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Ford (NYSE:F) posted a mixed set of Q1 2022 results, as the company continued to witness strong demand, although production was weighed down by continued supply chain issues and rising inflation. Ford’s total revenue declined 5% year-over-year to $34.5 billion, driven by lower wholesale shipments which were down about 9% year-over-year to 970,000 units. However, this was partly offset by higher average pricing, as Ford prioritized the production of more expensive vehicles as demand outstripped supply, with inventories remaining tight. Ford’s adjusted operating profit margins declined by around 400 basis points to 6.7%.  Adjusted EPS stood at $0.38, down from $0.70 in Q1 2021. That being said, things are expected to get better going forward. Ford has indicated that semiconductor supply was likely to improve over the second half of the year and has guided for wholesale volume growth of 10% to 15% versus last year. Ford also reaffirmed its 2022 adjusted operating profit guidance of $11.5 billion to $12.5 billion, which marks an increase from $10 billion in 2021.

While Ford stock gained about 2% in after-hours trading on Wednesday, following the earnings report, it remains down by over 30% year-to-date, trading at about $15 per share currently. However, we think the stock is a reasonably good value at current levels trading at under 8x consensus 2022 earnings. Growth is also likely to pick up this year, with revenue rising by about 8% per our estimates. The company’s electrification strategy could also help to unlock more value. Early signs of Ford’s electric vehicle strategy are quite promising. For example, Ford’s electric F-150 Lightning truck has been very well received, with the company more than tripling annual production of the vehicle to 150,000 units to meet demand. Ford intends to produce over 2 million electric vehicles per year by the end of 2026, which would translate to roughly a third of its global production.

That said, there are some near-term concerns. With inflation surging, the Federal Reserve is tightening monetary policy with more aggressive interest rate hikes looking likely in the coming months. This could result in a downcycle for the U.S. economy, which typically results in some weakness in automotive sales. That being said, Ford’s sales were already quite depressed over 2020 and 2021 (U.S. sales of around 2 million vehicles over 2021 and 2022, compared to 2.8 million in 2019) due to the semiconductor shortage, so there may not be too much downside even in an economic downturn. We value Ford stock at about $19 per share, which is about 30% ahead of the current market price. See our analysis on Ford Valuation: Expensive Or Cheap for more details on what’s driving our price estimate for Ford.  For more information on Ford’s business model and revenue trends, check out our dashboard on  Ford Revenue: How Ford Makes Money.

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 Returns Apr 2022
MTD [1]
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[1] Month-to-date and year-to-date as of 4/28/2022
[2] Cumulative total returns since the end of 2016

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