Ford Earnings: Strong Year-Over-Year Improvement and a Cash-Rich Balance Sheet Are Good to See

Ford Stock at a Glance

• Fair Value Estimate: $20
• Star Rating: 4 stars
• Morningstar Uncertainty Rating: High
• Morningstar Economic Moat Rating: None

Ford Earnings Update

Ford’s F first quarter gave us no reason to change our fair value estimate on the stock, and our overall thoughts on the stock are about the same as before the earnings release.

Adjusted diluted EPS of $0.63 comfortably beat the $0.41 Refinitiv consensus, but the stock still fell by about 2% in May 2 after-hours trading. We think that continued macroeconomic fears beyond management’s control may be holding the stock back as well, in that Ford confirmed but did not raise its 2023 guidance—whereas GM modestly increased its 2023 expectations on April 25. Ford finished the quarter with a balance sheet we see in solid shape to handle recession risk, with net automotive cash of about $9 billion. Automotive cash and securities totaled $28.6 billion, and credit line availability brings total available funds to $46.2 billion.

Ford Expects Pricing Headwinds

Management expects strong pricing headwinds for the rest of 2023, especially in the Ford Blue segment (combustion and hybrid vehicles not sold to commercial customers). The commercial segment, Ford Pro, enjoyed $1.5 billion of the $1.6 billion in year-over-year pricing gains for the quarter. This segment should do well this year with the launch of the new Super Duty pickup and continued sale of software, which has a 30% attachment rate. Blue’s $2.2 billion in favorable volume and mix, (F-Series mix was especially strong), plus another $500 million from Pro in that category, and pricing, more than offset $2.8 billion in cost headwinds from materials, warranty, pension, and fixed costs to drive total company adjusted EBIT up 45% to $3.4 billion. It also enabled $693 million in adjusted automotive free cash flow, up about $1.3 billion.

We expect cost headwinds to improve as 2023 unfolds because 85% of 2022′s cost increases came after the first quarter. However, pricing moderating and macro uncertainty, lower Ford Credit income as interest margins shrink, and loan losses rise from recent well-below-average levels, plus foreign exchange will be headwinds in 2023.