ii view: Ford suffers tough final quarter

This motoring mammoth has lost around a quarter of its value over the last year and offers a forecast dividend yield of close to 4%. Buy, sell, or hold?

Fourth-quarter results to 31 December

• Revenue up 17% to $44 billion
• Net income or profit of $1.3 billion, down from $12.3 billion
• Quarterly dividend of 15 cents per share, unchanged from Q3

Chief executive Jim Farley said:

“We should have done much better last year. We left about $2 billion in profits on the table that were within our control, and we’re going to correct that with improved execution and performance. 

“I’m excited about 2023, which is pivotal for us. We’ve got clarity and ambition with the Ford+ plan, a strong team carrying it out, and a line-up of great products and customer experiences that’s getting even better.”

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ii round-up:

Auto maker Ford Motor Co (NYSE:F) detailed fourth-quarter results which missed both its own and Wall Street expectations as it suffered ongoing supply chain challenges and a number of operational issues.

Final quarter 2022 earnings of $0.51 per share missed analyst hopes for $0.62 per share. Net income dropped to $1.2 billion from 2021’s final quarter outcome of $12.3 billion. 

Ford shares fell by around 6% in trading immediately following the news release and are now down by just over a quarter over the last year. European major Volkswagen AG (XETRA:VOW) has fallen by a similar amount over that time, while all-electric manufacturer Tesla Inc (NASDAQ:TSLA) has dropped by close to two-fifths. 

Ford recently cut the price of its electric Mustang Mach-E crossover as it looked to counter price cuts recently announced by Elon Musk's Tesla. 

Ford sales for the fourth quarter rose 17% to $44 billion but could have been higher if it had managed supply chain challenges better according to its management. 

Adjusted profit for 2022 was almost flat at $10.4 billion, hindered by higher costs given the need to manage supply chain issues and lower than planned production. 

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Expected profits for 2023 of between $9 billion and $11 billion are broadly in line with Wall Street’s current forecasts. A quarterly dividend of $0.15 per share is unchanged from the prior quarter, although there was a special dividend of $0.65 per share following the 2022 share stake sale in electric pick-up truck maker Rivian. 

Ford’s first quarter results are scheduled for 2 May.  

ii view:

With a history dating back over 110 years, Ford today designs, manufactures, markets and services a full line of connected, increasingly electrified passenger and commercial vehicles. Its brands include both Ford itself and Lincoln vehicles. Headquartered in Dearborn Michigan, it employs over 180,000 people globally with most of its sales at around three-fifths still coming from its home USA. Other important markets include Canada, the UK and Germany. 

For investors, Ford’s own admission that it should have managed challenges better is both honest but concerning. Competition for components is likely intense across the auto industry, costs broadly remain elevated, an uncertain economic outlook casts a shadow over future consumer spending, while required investment into new electric vehicles continues. 

More positively, initiatives including cutting costs are being pursued. Its market share in the key North American pick-up truck sector remains strong, while an estimated dividend yield of around 3.8% is not to be ignored. 

For now, and while a forecast price/earnings (PE) ratio in single digit territory leaves the valuation looking undemanding, investors may demand firmer evidence of growth.

Positives

• Action to restructure the business taken
• Investing in electric vehicle products

Negatives

• Supply challenges
• Rising costs

The average rating of stock market analysts:

Hold