Ford Motor
stock took off after the auto manufacturer reported better-than-expected earnings. Management’s forecasts, and some positive dividend news, are helping too.
Tuesday evening, Ford reported a fourth-quarter operating profit of $1.1 billion from sales of $46 billion. Wall Street was looking for just under $1 billion and $43.1 billion, respectively, according to FactSet. A year ago, Ford reported a fourth-quarter operating profit of $2.6 billion.
Ford declared its regular quarterly dividend of 15 cents, as well as an 18-cent special dividend, putting it in line to meet a commitment to return roughly 40% or 50% of its free cash flow to investors. The past four quarterly payouts, and the special dividend, work out to about 50% of 2023 free cash flow.
It’s the second special dividend Ford has paid in the past couple of years. Ford also paid a 65-cent special dividend in February 2023, reflecting strong cash flow generated in 2022.
For 2024, Ford expects to generate an operating profit between $10 billion and $12 billion. The $11 billion midpoint of that range is about $1 billion higher than the $10 billion analysts are currently projecting.
Shares rose about 7.1%, to $12.93, in after-hours trading shortly after the results were released. Through Tuesday’s trading, Ford stock was down about 10% over the past 12 months. The
S&P 500
and
Nasdaq Composite
were up about 19% and 29%, respectively.
Ford’s earnings and guidance shed light on how the entire U.S. car industry will perform in 2024, amid high interest rates and the increased labor costs that have resulted from the Detroit Three car makers’ four-plus year labor deal with the United Auto Workers union. (The prolonged strike that led to the deal cut into production by about 90,000 vehicles, mostly in the fourth quarter.)
Despite those headwinds, things look OK for the industry. U.S. new car sales rose more than 10% in 2023 and are forecast to be up slightly in 2024.
Electric vehicle sales aren’t growing like they once were, though. Ford’s EV division, which it calls Model e, generated a $4.7 billion full-year loss. That is steep considering full-year operating profit came in at $10.4 billion.
“EVs are here to stay, customer adoption is growing, and their long-term upside is central to [Ford],” said CFO John Lawler in a news release. “The customer insights we’re getting by being an early mover in electric
pickups, SUVs, and commercial vehicles are invaluable—especially as we’re developing next-generation EVs that are going to surprise customers and be profitable within a year of launch.”
The next-gen products won’t arrive in 2024 though. And the Model e will lose more money in 2024 compared with 2023. Management projects a loss for the division of about $5 billion to $5.5 billion this year.
Freedom Capital Markets analyst Mike Ward expected that Ford would forecast earnings before interest and taxes of $12.8 billion. Scaled-back EV investment was part of his reasoning. He turned out to be a little aggressive, but Ford’s guidance still topped expectations.
The EV losses are large because billions in spending are being counted as expenses, while sales are still relatively small, explains Ward. He estimates Ford is spending some $4 billion a year on EV development.
Ward rates Ford shares Buy and has a $20 price target for the stock, but his peers aren’t as optimistic. The average analyst price target for Ford stock is about $12.50, while the shares closed at $12.07 on Tuesday. Only 37% of analysts covering Ford stock rate shares Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 55%.
Ford’s results mirror what is happening at
General Motors.
GM posted a similar quarter and, so far, a similar stock reaction. Shares gained 9.4% after GM said it expects a 2024 operating profit of about $13 billion, compared with $12.4 billion in 2023. At the time of the fourth-quarter report, Wall Street was looking for closer to $11 billion. GM earned $12.4 billion in 2023.
Options markets imply that in Wednesday trading, Ford stock will move about 6%, up or down, following the earnings. Shares had fallen an average of about 5% following the past four quarterly reports, moving lower each time.
Rising interest rates, higher labor costs, and slowing demand growth for electric vehicles have weighed on investor sentiment for months. But despite those challenges, plus losses in the Model e division, Ford had one of its best years ever in 2023.
Write to Al Root at [email protected]
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