Key learning points
- Analysts estimate adjusted earnings per share of -$0.10 vs. -$0.35 for the second quarter of 2020.
- Ford truck sales in the US, as previously reported, declined year-on-year in the second quarter.
- Company-wide sales are expected to grow fastest in at least 16 quarters as sales bounce back after the shock of the pandemic.
Ford Motor Co. (F) may have begun to pave the way for a turnaround led by new Chief Executive Officer (CEO) Jim Farley, who took on the role in October. The company has redesigned several popular models, including an electric Mustang SUV and the flagship F-150 pickup truck. The company also plans to spend $30 billion to expand production of electric vehicles. But Ford faces significant challenges in making consistent profits, including a global shortage of semiconductor chips that has caused production to be halted or paused at several facilities.
Investors will look to see how Ford addresses these challenges as the company reports post-market profits on July 28, 2021 for Q2 FY 2020. Analysts expect mixed results. Adjusted earnings per share (EPS) are expected to be negative for the first time since Q2 FY 2020, while revenue is expected to grow at the fastest rate in at least four years.
Investors will also focus on a key Ford metric, total truck sales in the US. Trucks are very profitable for the business. For has not yet published a specific number for total truck sales in the US. But publicly available Ford data shows that truck sales in the US fell nearly 1% in the second quarter.
After struggling to outperform the market from late July to early October 2020, Ford shares have since surged through July 2021. The advance was characterized by a number of large fluctuations. For example, after Ford announced earnings for the first quarter of 2021 in April, the stock fell briefly before rallying again in June. The stock has since fallen back, but still outperforms the broader market. Ford stock has delivered a 1-year total return of 97.8%, compared to 35.3% for the S&P 500, on July 27.
Ford earnings history
Ford posted negatively adjusted EPS in two of the past 13 quarters: Q1 and Q2 FY 2020, at the start of the COVID-19 pandemic. Ford followed that up by posting three consecutive quarters of profit despite declining or lukewarm sales growth. Adjusted EPS increased 93% in Q3 FY 2020 and 191.8% in Q4 FY 2020. Ford also posted a profit in Q1 FY 2021 compared to a loss a year earlier. Analysts predict adjusted earnings per share will flip back to a loss in the second quarter of 2021, estimated at -$0.10 per share. However, this loss would be much smaller than in the same period a year earlier.
The history of Ford’s earnings has also been erratic. The company posted six consecutive quarters of YOY sales declines, starting in Q1 FY 2019. The main decline, of more than 50%, was in Q2 FY 2020. Since then, sales performance has been stronger, but still mixed. The company posted YOY revenue increases for both Q3 FY 2020 and Q1 FY 2021, but Q4 FY 2020 saw a 9.5% YOY decline. Analysts expect a substantial acceleration in revenue growth in the second quarter of 2021, with revenue up 27.6% year-over-year. This would be by far YOY’s biggest annual revenue growth in the past four years.
|Ford key stats|
|Q2 FY 2021||Q2 FY 2020||Q2 FY 2019|
|Adjusted Earnings Per Share||-$0.10 (estimate)||-$0.35||$0.28|
|Revenue (billions)||$24.7 (estimate)||$19.4||$38.9|
|Total Truck Sales in the US||235,848 (actual)||237,891||324,243|
The most important statistic
As mentioned, investors will also be closely monitoring total US sales of Ford’s trucks, the company’s most popular vehicle type. Ford produces a range of light, medium and heavy trucks. Models include the F-150 series, Ranger, Super Duty and more. In general, Ford’s trucks generate significantly higher profit margins than the smaller, lighter vehicles. The company has undergone a strategic transition in recent years to shift production and sales towards more profitable pickup trucks and SUVs.
After sustained quarterly increases in 2019, Ford’s truck sales have seen numerous periods of weakness or declines since the start of the global pandemic. The latest figures show Ford recorded a 27% YOY decline in total U.S. truck sales in June 2021. This sharp drop largely reflects the aforementioned production halts due to the global chip shortage. Notably, sales of Ford’s U.S. trucks throughout Q2 FY 2021 fell by a much smaller margin YOY, as noted above. Investors will look to the upcoming earnings report to see if the sharper drop in June is a sign of worse things to come or an anomaly.