Ford Motor Company (F 4.16%) reported second-quarter earnings on Wednesday afternoon that trounced Wall Street's estimates -- and raised its guidance for the full year -- as strong pricing for both new and off-lease vehicles helped offset production disruptions caused by a global shortage of computer chips. 

On an adjusted basis, excluding one-time items, Ford earned $0.13 per share on revenue of $26.8 billion. That was a double beat: Wall Street analysts polled by Thomson Reuters had expected Ford to report a loss of $0.10 per share on revenue of $23.84 billion, on average. 

The raw numbers

Metric Q2 2021 Q2 2020
Revenue $26.8 billion $19.4 billion
Wholesale units 764,000 645,000
Adjusted earnings (loss) before interest and tax (adjusted EBIT) $1.1 billion ($1.9 billion)
Adjusted EBIT margin (negative) 4% (10%)
Net income $561 million $1.1 billion
Adjusted earnings (loss) per share $0.13 ($0.35)
Adjusted free cash flow (negative) ($5.1 billion) ($4.8 billion)

Data source: Ford Motor Company. Adjusted figures exclude the effects of one-time items. Wholesale units represent the number of vehicles shipped to dealers and are rounded to the nearest thousand.

A Ford F-150 Lightning Pro, an electric pickup truck, shown on a construction site.

CEO Jim Farley said that Ford now has over 120,000 reservations for the battery-electric F-150 Lightning pickup, shown here. Ford is working to increase battery supplies ahead of the truck's expected launch early next year. Image source: Ford Motor Company.

How Ford's business units performed

The second quarter of 2020 was an exceptionally rough one for nearly all automakers, Ford included, as the COVID-19 outbreak forced most auto factories to shut down for several weeks. Although 2021 has been better, chip-related production disruptions held Ford's sales back despite strong consumer demand. 

Offsetting the impact of lower shipments to some extent, that strong demand helped Ford's financing arm to a record profit and significantly reduced the company's spending on sales incentives.

Here are highlights from the automaker's business units: 

  • North America generated EBIT of $194 million, a tiny profit by Ford's historic standards but an improvement over the $946 million it lost in the region a year ago. Ford's EBIT margin in the region was 1.3%. 
  • South America posted an EBIT loss of $86 million, an improvement on the $165 million it lost in the second quarter of 2020. Ford is winding down manufacturing operations in Brazil and Argentina; it will import vehicles to the region in the future. 
  • Europe lost $284 million on an EBIT basis, again an improvement on its $667 million loss a year ago. Sales in the region improved significantly, but haven't yet returned to pre-pandemic levels.
  • In China, the EBIT loss was $123 million, an improvement of $13 million from a year ago despite a decline in wholesale shipments. Again, pricing power and an ongoing restructuring were much of the story here.
  • Ford's rest-of-the-world International Markets Group generated $204 million of EBIT, versus an EBIT loss of $149 million a year ago, on strong sales of Ranger pickups and the rugged Ranger-based Everest SUV. 
  • Ford Credit, the company's financing subsidiary, generated earnings before tax of $1.6 billion, up from $543 million in the second quarter of 2020. That was a record result driven largely by exceptionally strong prices for off-lease vehicles sold at auction. 

Cash, debt, and one-time items

As of June 30, Ford had $25.1 billion in cash and another $15.9 billion in available credit lines, for total liquidity available to its automotive business (excluding Ford Credit) of $41 billion, down from $46.9 billion on Dec. 31, 2020. Against that, it had $25.9 billion in debt attributable to its automotive business, up slightly from $24 billion at the end of last year. 

The automaker took a one-time credit of $106 million in the second quarter, as a positive change in its pension-fund valuations more than offset some small restructuring charges from South America and Europe. A year ago, Ford took a one-time credit of nearly $3.5 billion related to a revaluation of its stake in self-driving start-up Argo AI.

What Ford's CEO had to say

"The demand for our first round of high-volume EVs clearly has exceeded our most optimistic projections," CEO Jim Farley said during the earnings call. "The reservations for the F-150 Lightning have now climbed well past 120,000 units, and 75% of those customers are new to Ford. We are now working around the clock to break constraints and increasing our manufacturing capacity for these red-hot new battery electric vehicles."

Farley said that Ford is working with its battery suppliers, LG Chem and SK Innovation, to increase annual battery capacity for the Mustang Mach-E by 70%, and that it's taking "similar action" ahead of the launches of its electric E-Transit commercial van, due this fall, and the F-150 Lightning pickup early next year. 

Looking ahead: Ford raised its guidance

CFO John Lawler said that Ford has raised its forecast for full-year adjusted EBIT by about $3.5 billion since its last forecast in April, to between $9 billion and $10 billion. Lawler said that Ford expects sales volume in the second half of the year to be about 30% higher than in the first half, as chip supplies improve and Ford is able to restock depleted dealer inventories.

Lawler also said that auto investors can now expect Ford to generate positive adjusted free cash flow of between $4 billion and $5 billion for the full year, on improvements in working capital as its production returns to normal levels.