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Ford's Earnings Crushed Estimates -- but the Chip Shortage Is Getting Worse

By John Rosevear - Apr 28, 2021 at 5:17PM

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First-quarter results were great, but second-quarter results probably won't be.

Ford Motor Company (F 1.71%) said that its first-quarter earnings beat Wall Street's expectations by a wide margin. But the company warned that it could lose as much as half of its second-quarter production amid an ongoing global shortage of semiconductors, with chip supplies not expected to improve until later in the year. 

Ford's first-quarter net income was $3.3 billion, higher than expected and a big improvement over the $2 billion loss it posted amid the COVID-19 outbreak in the first quarter of 2020.

On an adjusted basis, excluding one-time items, Ford earned $0.89 per share, well ahead of Wall Street's consensus $0.21 per-share estimate. Ford's automotive revenue of $33.6 billion also handily beat the consensus estimate. 

("Automotive" revenue excludes revenue from Ford's financial-services unit. The number helps auto investors evaluate the health of Ford's core business on an ongoing basis. Ford's total first-quarter revenue, including results from Ford Credit, was $36.2 billion, up from $34.2 billion in the first quarter of 2020.) 

An orange Ford Mustang Mach-E GT, a high-performance battery-electric crossover.

Ford said that 70% of the customers who have purchased the new electric Mustang Mach-E are new to the company. Image source: Ford Motor Company.

About the chip shortage

CFO John Lawler told reporters that the company currently expects semiconductor availability to "get worse before it gets better." Lawler said that Ford expects the chip shortage to hit its worst point between now and the end of June, with supplies improving through the second half of 2021. 

Most of the world's major automakers have had to reduce production of certain models due to the shortage of computer chips, a result of increased demand for high-end computers and devices from consumers stuck at home amid the global pandemic last year.

Highlights of Ford's first-quarter performance

  • As expected, Ford's North America unit generated a strong profit: $2.9 billion in earnings before interest and taxes (EBIT), on strong retail demand for its new-for-2021 F-150 pickup, key SUV models including the new Bronco Sport, and the new electric Mustang Mach-E. The region's revenue increased 5% from a year ago, to $23 billion. 
  • Ford North America's EBIT margin, a widely watched number, was a stout 12.8%.
  • Ford Europe generated $341 million in EBIT, with a margin of 4.8% -- a sharp improvement from a year ago. Strong sales of commercial vehicles and continued high demand for the sporty Puma crossover drove the result.
  • Ford China generated an EBIT loss of just $15 million, much improved over a $241 million loss on the same basis a year ago, and the unit's fourth straight quarter of year-over-year improvement. Returning Ford China to profitability is one of CEO Jim Farley's key goals, and the unit's revamped product line and slimmed-down cost structure is showing good progress.
  • Ford Credit generated $962 million in profit before tax, up from $912 million in the fourth quarter and a huge improvement from its pandemic-impacted results a year ago. 
A red 2021 Ford F-150, a full-size pickup truck, in a country setting.

How did Ford generate such a strong profit amid the chip shortage? Exhibit A is the new-for-2021 F-150, which has been selling very well at strong prices. Image source: Ford Motor Company.

Special items, cash, and debt

Ford ended the quarter with $31.3 billion in cash, and another $15.9 billion in available lines of credit, for total "automotive" liquidity of $47.2 billion. Against that, it had $25.9 billion in debt attributable to its automotive business, leaving it with $5.5 billion in cash net of debt.

Ford took $401 million in one-time charges in the first quarter of 2021, most of that related to ongoing restructuring efforts in Europe and South America. 

Looking ahead: The chip shortage will hurt for a while longer

Lawler said that Ford now expects to lose about 1.1 million units of production this year due to the semiconductor shortage. That's significant: Ford sold a total of 4.2 million vehicles in 2020, and 5.4 million in 2019 before the onset of the pandemic.

Specifically, Lawler said, Ford expects to lose about 50% of its planned second-quarter production and 10% of its planned production in the second half of 2021. (Ford lost 17% of its planned production in the first quarter due to the chip shortage, but was able to deliver good financial results by prioritizing high-margin products and retail sales.)

The upshot is that Ford now expects its full-year adjusted EBIT to be between $5.5 billion and $6.5 billion, down from the $8 billion to $9 billion it expected at the beginning of the year. 

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