Ford’s Second-Quarter Earnings Disappointment Sends Stock Plunging 11%

(Source-www.equitypandit.com)

Ford’s second-quarter earnings disappointment

Ford’s second-quarter earnings disappointment has led to an 11% drop in its stock price during after-hours trading, following a report of lower-than-expected adjusted profit. The Detroit-based automaker earned an adjusted profit of 47 cents per share, falling short of analysts’ expectations, which were set at 68 cents per share according to LSEG data. The company’s ongoing issues with quality and an underperforming electric vehicle (EV) segment have contributed to this financial setback.

Despite efforts by Ford to address these challenges, the market’s reaction has been skeptical. Analysts, including Morgan Stanley’s Adam Jonas, expressed doubts about Ford’s progress, questioning whether the company’s current trajectory aligns with the improvements it claims to have made since CEO Jim Farley took over in October 2020. Farley has prioritized resolving quality problems and overhauling production practices to reduce errors, yet Ford remains at the forefront of industry recalls.

Struggles with Quality and EV Ventures

Ford has been grappling with significant warranty expenses, which increased by $800 million in the second quarter compared to the previous period. Finance Chief John Lawler indicated that most of these costs were associated with older vehicles from 2021 and earlier. He reassured me that these expenses were a one-time occurrence and anticipated that the latter half of the year would align with Ford’s warranty cost expectations. The company continues to forecast annual earnings before interest and taxes between $10 billion and $12 billion.

Lawler acknowledged that the company’s transformation process involves inherent challenges, asserting that the current setbacks should not be viewed as indicative of a broader failure. He emphasized Ford’s confidence in its strategic plan, which involves overcoming obstacles as part of a broader restructuring effort. Meanwhile, Ford’s shift away from ambitious EV plans, including changes to a Canadian assembly plant initially designated for a three-row EV, highlights the difficulties in meeting the high demand for traditional gas-powered vehicles.

EV Losses and Market Reactions

Ford’s electric vehicle and software division reported a $1.1 billion operating loss for the second quarter, following a $1.3 billion loss in the first quarter. The company anticipates a pretax loss of up to $5.5 billion for the year in this segment. Despite these losses, Ford remains committed to expanding its hybrid offerings and developing affordable electric vehicles through its California-based team.

However, the company’s efforts to streamline operations and reduce structural costs have not fully resonated with investors. CFRA Research analyst Garrett Nelson noted that some investors are growing impatient with Ford’s strategy, despite management’s assurances of laying a foundation for long-term growth.

On a more positive note, Ford’s commercial vehicle segment, which CEO Farley refers to as the company’s “secret weapon,” continues to contribute significantly to the company’s profits. This division achieved an operating profit of $2.6 billion for the quarter, with a robust 15% operating margin.

In contrast to Ford’s second-quarter earnings disappointment, rival General Motors reported stronger performance with profits and revenue exceeding expectations, driven by high demand and pricing for gas-powered trucks.. GM has also raised its annual forecast twice this year, though its stock experienced a slight dip due to concerns about the sustainability of the auto industry’s current resilience.