Ford Motor Company (NYSE:F) will report its second-quarter earnings results after the U.S. markets close today. What should auto investors expect?
What Wall Street expects
Wall Street analysts polled by Thomson Reuters expect Ford to report an adjusted loss of $0.10 per share on revenue of $23.84 billion, on average.
Both would be improvements over the second quarter of 2020, when Ford reported a loss of $0.35 per share on revenue of just $15.95 billion following COVID-19-related factory shutdowns. But both would fall well short of the results that were typical for Ford in recent years before 2020.
How Ford performed during the second quarter
Like other automakers, Ford's manufacturing output was constrained by tight supplies of semiconductors during the quarter. The chip shortage forced Ford to make production cuts, leaving Ford's dealers with thin inventories, which in turn hurt sales.
- Ford's sales in the United States were up 9.6% in the second quarter from a year ago, but that number doesn't really tell the story. Recall that Ford's factories were idled in April and much of May last year; while Ford posted strong year-over-year increases in those months, the company's sales totals were still constrained by tight inventories. And in June, when the year-over-year comparison was tougher, Ford's U.S. sales were down almost 27%.
- For a better idea of how the chip shortage is hurting Ford, note that its Ford's U.S. sales in the second quarter of 2021 were down about 26.9% from its U.S. sales in the second quarter of 2019, before the COVID-19 outbreak.
- A similar story unfolded in China, where Ford has been making good progress toward rebuilding its market share after several difficult quarters. Ford's sales in China fell about 3.6% in the second quarter, as production disruptions related to the chip shortage hampered Ford's efforts to take advantage of good demand for Lincolns, Ford-brand SUVs, and Ford Transit commercial vans.
- While Ford's China sales weren't what they could have been, the company is still making good progress: Its second-quarter China sales were up 64.6% from its result in the second quarter of 2019.
- The numbers look somewhat better in Europe, where Ford posted a stout 43.7% sales increase over the second quarter of 2020. A strong recovery in demand for commercial vehicles -- and Ford's ability to deliver them -- helped, as did continued high demand for the small Europe-only Puma crossover SUV.
- But take note: That stout gain is a reflection of just how bad things were in Europe in the spring of 2020. Compared to its result in 2019, Ford's sales in Europe were down about 30% in the second quarter of 2021.
To sum up: Demand for Ford's latest products has continued to be strong, but because of the chip shortage, the company hasn't been able to take full advantage.
What Ford told us to expect
Last month, CEO Jim Farley told auto investors that the company expects its second-quarter results to be "significantly better" than a year ago, and better than it had expected when it provided its full-year guidance on April 28.
Specifically, Farley said, it expects its adjusted earnings before interest and tax (adjusted EBIT) to come in well above the $1.9 billion loss it posted in the second quarter of 2020. Ford's net profit will be lower than the surprise $1.1 billion profit it posted a year ago, Farley said, as that was driven by a $3.5 billion accounting gain on Ford's investment in self-driving start-up Argo AI.
So what does that mean? I think if we read between the lines, Farley was telling us to prepare for a second-quarter adjusted-EBIT loss -- but a much smaller loss than that $1.9 billion hit a year ago.
Separately, on June 28, Ford said in a regulatory filing that it expects to record pre-tax charges of up to $375 million related to the ongoing wind-down of its operations in Brazil and Argentina by the end of 2021. Only about $10 million of those charges will be cash; the remainder will be non-cash accounting charges, it said. It's not clear how much of that $375 million, if any, will be applied to Ford's second-quarter results.
What to expect when Ford reports earnings
The COVID-19 disruptions had an enormous effect on businesses all over the world in the first half of 2020, to the point where it's not really a good basis for comparison. A better comparison might be the second quarter of 2019, when Ford reported adjusted EBIT of $1.7 billion on $38.9 billion in revenue.
It seems pretty clear that Ford's 2021 result is going to fall well short of that. I think it's possible that Ford will eke out a tiny profit on an adjusted-EBIT basis, but it's a safe bet that its revenue and net income will both fall well short of what we'd expect absent the chip shortage.