Ford Earnings: Cost Headwinds Piling Up Throughout the Year Lead to a Disappointing 2024 Outlook

Key Morningstar Metrics for Ford Motor

• Fair Value Estimate: $19.00
• Morningstar Rating: 5 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: High

What We Thought of Ford Motor’s Earnings

Ford Motor’s F third quarter gave us no reason to change our fair value estimate of its stock. Shares fell over 6% on Oct. 28 during after-hours trading, due to management narrowing its 2024 full-year adjusted EBIT guidance to about $10 billion, at the low end of the $10 billion-$12 billion range given in July. Despite market disappointment, the quarter was decent, with adjusted diluted earnings per share of $0.49, up 25.6% year over year and ahead of the $0.47 LSEG consensus.

Total company adjusted EBIT margin rose 50 basis points to 5.5%, but Ford’s cost issues continue to cause it to underperform General Motors GM on this metric. GM posted third-quarter adjusted EBIT margin of 8.4%. Ford’s adjusted free cash flow excluding Ford Credit’s earnings—but including the captive’s $175 million dividend—was $3.2 billion, up from $1.2 billion in the prior-year quarter. An $800 million working capital inflow, mostly from payables, was a $1.9 billion year-over-year improvement.

Cost issues explain 2024 guidance being at the low end of management’s range, along with a supplier issue with highly profitable combustion vehicles. Warranty costs were not the problem as they were in the second quarter, but they’ve been higher than planned, as have materials costs at the Turkish joint venture for Transit vans sold in Europe. Warranty metrics on recently produced vehicles remain favorable, and management is searching for preventive measures to stave off future large warranty costs on older vehicles, but no approach is foolproof.

For the quarter, the Pro commercial segment had a $600 million unfavorable cost variance, which almost perfectly offset $700 million in cost improvements in Ford Blue and the Model e electric vehicle segment. Pricing was a $100 million headwind, entirely due to EVs. The Blue (combustion) segment saw a $100 million pricing tailwind, which is good news, given continued market concerns over pricing collapsing now that the semiconductor chip shortage is mostly behind the industry.