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Thursday, April 28, 2022 3:42:02 PM
By: Schaeffer's Investment Research | April 28, 2022
• Supply Chain Constraints Cut Into Ford Results
SUPPLY CHAIN CONSTRAINTS CUT INTO FORD RESULTS
Ford (NYSE: F) had a good quarter despite the impact of supply chain constraints. The company reported a YOY decline in revenue that was less than expected and comes with what we consider very good news. The company reports significant supply chain improvement in March that is in line with the general expectation things will get better in the second half. What this means for Ford is that it can begin to ramp production back to prior levels and the demand for its vehicles.
“In the most recent quarter, the continuing global shortage of semiconductors held down Ford’s January and February production and shipments, though manufacturing rates were significantly improved during March. The company entered the second quarter with an extremely healthy order bank,” said the company in its press release.
Perhaps the best news is that production of EVs is on track to reach 600,000 by the end of next year. At this pace, the company will soon become the 2nd largest producer of electric vehicles and may even eclipse Tesla over the next few years. The company says it isn’t planning to spin off the newly created Model e division but we see a tremendous opportunity for both Ford and shareholders. The BEV OEMs are trading at less than 10X their earnings while Tesla trades closer to 80X. A spin-off could unlock that value.
FORD RACES PAST THE MARKETBEAT CONSENSUS
Ford had a good quarter supported by robust demand and pricing despite multiple production delays during the quarter. The company reported $34.5 billion in revenue for a decline of 4.7% versus last year but the figure is nearly 900 basis points better than expected. The revenue is driven by a 9% decline in wholesale shipments offset by pricing increases. On a segment basis, the IMG countries led with a decline of 33% followed by a 15% decline in China and a 14% decline in South America. Sales in North America fell by only 4%.
“The appeal of these products – Bronco, Bronco Sport, Maverick, Mustang Mach-E, E-Transit and now the F-150 Lightning – is undeniable,” said CEO Jim Farley. “That’s translating into orders, typically with rich configurations that deliver great experiences to those customers and healthy pricing for us.”
Moving down to the earnings, the company experienced margin contraction at both the gross and operating levels. This led to a net loss on a GAAP basis but the loss is entirely due to a mark-to-market readjustment in the Rivian stake which is a non-cash impairment. On an adjusted basis, the revenue strength led to $0.38 in EPS which is slightly better than the Marketbeat.com consensus but shows the effects of inflation, mix, and deleveraging due to volume. Turning to the guidance, the guidance is positive and leaves the door open for outperformance as well. The company reaffirmed the prior forecast for revenue growth of 10% to 15%, not so great by itself but a cautious outlook in our opinion. Based on the Q1 results and assuming supply chain constraints do ease and demand stays strong, Ford could easily come in at the high end or above.
THE TECHNICAL OUTLOOK: FORD FALLS TO NEW LOW
Shares of Ford have been in a correction since hitting the EV-induced peak last year. The price action is down another 4% today and looks like it could go lower but we think the move is overextending. Not only is MACD diverging from the new lows but stochastic is deep in the oversold territory where it tends to snap back. The $14 level is a good target for support, if the stock bounces there we see it forming a bottom that may lead to a base and a reversal. If not, shares of Ford could keep sliding back down to the $12 level or lower.
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