When Ford Motor Company (F +3.66%) touted a big year-over-year increase in June domestic deliveries a month ago, I cautioned that the company's sales continued to lag its pre-pandemic performance. A big decline in its share of the full-size truck market was particularly concerning.
Last week, Ford reported another big year-over-year sales gain for the month of July. Moreover, its sales pace accelerated compared to June, which should give investors more confidence that the storied automaker can continue churning out strong profits.
Another step in the right direction
Ford reported 163,942 deliveries in the U.S. for the month of July, up 37% from 120,053 a year ago. Deliveries also increased about 8% sequentially. Sales were still down 7% compared to July 2020, but excluding the discontinuation of several low-margin sedan models over that period, deliveries increased slightly.
Importantly, U.S. deliveries of Ford's high-margin F-Series trucks reached 63,341 units: up from 57,673 units a month earlier. Domestic F-Series sales remain 11% below the peak levels recorded in July 2018 and July 2020. (Ford didn't report monthly sales in 2019.) Nevertheless, July represented the family's best sales month of 2022.
Image source: Ford Motor Company.
Ford's July sales results also validated the company's strategic shift from cars to SUVs. Domestic deliveries of crossovers and SUVs reached 66,266: up from 38,975 units in July 2021 (when tight supply severely crimped sales) and 52,389 units in July 2020. The recently introduced, high-margin Bronco and Bronco Sport models accounted for more than 100% of Ford's growth in this slice of the market compared to 2020.
Sales trends could strengthen further
Late last month, Ford reported surprisingly strong results for the second quarter and reaffirmed its full-year forecast. That said, the company's Q2 profitability benefited from shipping more vehicles in the highly profitable North American market than it delivered (i.e., increasing dealer inventories).
The uptick in deliveries last month following an increase in inventory levels during the second quarter confirms that tight inventory was limiting Ford's domestic sales in the first half of 2022. As supply constraints continue to ease, sales volumes could move even closer to pre-pandemic levels.
The recent pullback in gas prices also bodes well for Ford. The average price of regular unleaded fuel hit a record $5.016 per gallon in the U.S. on June 14, but it has since fallen by around $0.90. While fuel prices remain elevated compared to the past several years, the risk of rising gas prices crushing demand for Ford's high-margin (but fuel-guzzling) trucks and SUVs has receded significantly.
Ford stock still looks like a bargain
After crashing in the first half of 2022, Ford stock has recouped some of its losses recently, rallying 35% over the past month. That has boosted its market cap to around $61 billion.
NYSE: F
Key Data Points
Even at that level, Ford shares look cheap. Management estimates that the company will generate an adjusted operating profit between $11.5 billion and $12.5 billion and adjusted free cash flow of $5.5 billion to $6.5 billion in 2022. Profitability and cash flow could improve further as Ford finishes turning around its overseas divisions and its electric vehicle (EV) business gains scale.
The auto business has always been volatile, and the industry's upcoming transition toward EVs could magnify that tendency in the near term. That said, Ford has a very strong market position in North America (and globally, in the case of commercial vehicles). Those strengths give the company a good chance of growing (or at least maintaining) its earnings in the years ahead, making Ford stock a great buy for long-term investors.
