Ford Earnings Beat Wall Street Estimates Stock Lowers

First Quarter Results Ford Motor That beat Wall Street’s expectations, but shares fell amid economic worries in after-market trading. Investors are wary of highly cyclical auto stocks as many predict a recession in the coming months. A similar thing happened General Motors ( GM ) stock after reporting first-quarter numbers on April 25.

Ford (ticker: F ), on Tuesday evening, reported quarterly operating profit of $3.4 billion and earnings of 63 cents a share on sales of $41.5 billion.

Wall Street expected an operating profit of $2.5 billion and earnings of 42 cents a share on sales of $39.2 billion. A year ago, Ford reported first-quarter operating profit of $2.3 billion and EPS of 38 cents on sales of $34.5 billion. of 2022.

This is the first quarter Ford has reported using its new business units. Operating profit in the traditional car business was $2.6 billion. Ford’s commercial business generated an operating profit of $1.4 billion. The electric vehicle business lost $722 million. The EV business is expected to lose around $3 billion through 2023.

EV pricing and Tesla ( TSLA ) price cuts came up during the company’s earnings conference call. CEO Jim Farley disagrees with Tesla CEO Elon Musk’s view of selling cars at low or margin prices and making profits by selling services to existing customers.

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Selling services is a good idea, Farley said, and that’s precisely what Ford is doing in its commercial business. But he wants selling cars to be a profitable business as well. “I do not give any compensation to my vehicle teams for software sales or any kind of fringe benefit,” Farley said. Vehicles should get “8% [operating profit margins] On their own.”

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Overall, the first quarter was a strong start to the year for Ford. However, shares were down 2% in after-hours trading. Earlier shares fell more than 2% in regular trading on a bad day for the market. The Nasdaq Composite fell 1.1%. Investors don’t like car stocks these days.

GM beat Wall Street estimates and raised full-year financial guidance when it reported results recently. GM currently expects 2023 operating profit to come in between $11 billion and $13 billion. In January, management expects an operating profit of $10.5 billion to $12.5 billion. Shares fell 4%.

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Ford did not change its full-year guidance. The company still expects operating profit between $9 billion and $11 billion. “We have a lot of year ahead of us,” CFO John Lawler said when asked why guidance wasn’t raised after a strong first quarter.

Analysts currently project a 2023 operating profit of $9.6 billion, at the lower end of Ford’s range. Ford reported 2022 operating profit of $10.4 billion.

“The quarter was strong, beating sales and earnings but not raising guidance,” says Edward Jones analyst Jeff Windau. Nothing in the quarter surprised him. Investors don’t feel good about auto stocks in this economy. Supply is improving after years without production disruptions, but now there are questions about demand. “It’s keeping things under wraps for now.” Windau rates shares as hold. He has no price target for the stock.

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The problem for stocks is not Ford or GM. It is the economy. Vehicle affordability has become a headwind for the entire industry. At the end of the first quarter, 17% of Americans financed their vehicles and paid more than $1,000 a month. Two years ago, only about 6% of people financing vehicles made $1,000 a month in car payments.

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Declining affordability threatens new car demand and new car prices. Either factor can have a major impact on a carmaker’s profitability.

RBC analyst Tom Narayan thinks things will get tougher for automakers as the year goes on. “We see the most risk on where Ford expects pricing to be this year. Pricing has been resilient so far this year, but we think affordability will become an upward headwind,” the analyst wrote in a recent research report.

Narayan rates Ford stock a Hold and has a $12 price target on the stock, slightly below the average analyst price target of about $13.40 a share.

Overall, 33% analysts cover the company’s stock as a buy ratio. The average buy-to-value ratio for stocks in the S&P 500 is about 58%. A year ago, 48% of analysts rated Ford stock as buy. The headwinds Narayan described have dampened analysts’ interest in Ford stock.

Investors feel the same way. Coming into Tuesday trading, Ford stock is down about 15% over the past 12 months

S&P 500

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flat and

Dow Jones Industrial Average

An increase of about 3%.

Write to Al Root at [email protected]

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