When it comes to iconic automaker Ford Motor Company (F 0.42%), there are plenty of talking points. Investors could bring up its vibrant dividend yield of 5.5%, its massive losses on electric vehicles (EVs), its struggles in China, and even its dominance with SUVs and trucks. But the best part of Ford right now, Ford Pro, is what nobody seems to be talking about.
Booming business
"Ford+ is on track, our underlying quality is improving, and Ford Pro is showing the huge upside we've got in all our businesses," said Ford president and CEO Jim Farley. Ford+ is the automaker's new, three-pronged business strategy. Farley is right about one thing: Ford Pro, which produces Ford's commercial vehicles, is showing massive upside right now. Let's take a quick look at results from the first half of 2024.
During this time, Ford Pro generated $5.6 billion in earnings before interest and taxes (EBIT), which far outpaced the $2 billion EBIT of Ford's traditional business, Ford Blue. And Ford Pro is in another universe compared to model e, Ford's electric vehicle division, which posted a $2.5 billion loss.
What's more, Ford Pro is growing faster than Ford's traditional business, and it's showing pricing power. During the first half of 2024, Ford Pro, grew revenue at a 21% clip on only a 12% increase in wholesales. This makes Ford Pro very different from Ford Blue, responsible for the company's traditional gasoline powered vehicle business, which actually posted a 3% revenue decline on a 4% decline in wholesales.
And Ford Pro's first-half EBIT margins were a staggering 15.9%, a 290-basis-point improvement year over year and well ahead of Ford's traditional business, which generated EBIT margins of only 4.3%.
Focusing on Ford Pro
Ford has flat-out said that consumers are buying every single Super Duty truck and Transit commercial van the company can make, and management has adjusted plans in order to add 100,000-unit capacity to its Ontario, Canada, plant to produce more Super Duty trucks.
Another overlooked aspect of Ford Pro is its subscription service, which is a high-margin business. Subscriptions to Ford Pro software were up 35% during the second quarter, and mobile repair orders fulfilled by the company more than doubled.
Expect the trend of a booming Ford Pro and slowing growth from Ford's traditional business to continue in the near term. In fact, management upped Ford Pro's guidance to a full-year EBIT mark of $9 billion to $10 billion, up from previous guidance of $8 billion to $9 billion, driven by organic growth, pricing power, and favorable product mix, while it lowered Ford Blue $1 billion on each side of the range to between $6 billion and $6.5 billion, driven primarily by higher warranty costs.
What it all means
While investors might base their Ford investment thesis on its healthy dividend or its profitable SUVs and full-size trucks, it would be a huge mistake to merely glance over Ford Pro, which is quickly becoming its cash cow. It's even possible that Ford Pro's margins will move even higher once its subscription service and repair services expand and generate more high-margin revenue.
