Morningstar

Ford Posts Disappointing Q4 Earnings Due to Cost-Control Problems

Ford announces supplemental dividend; stock undervalued with $22 fair value estimate.

Securities In This Article
Ford Motor Co
(F)

Ford Stock at a Glance

  • Current Morningstar Fair Value Estimate: $22
  • Ford Stock Star Rating: 4 stars
  • Economic Moat Rating: None
  • Moat Trend Rating: Negative

Ford Q4 Earnings Update

We and Ford’s (F) management were very frustrated with the firm’s fourth-quarter results, which had adjusted diluted earnings per share of $0.51, missing the Refinitiv consensus of $0.62, and sending the stock down 6.5% in Feb. 2 afterhours trading.

Full-year adjusted total company EBIT of $10.4 billion was well below late October guidance of $11.5 billion. Fourth-quarter earnings before income and taxes margin of 5.8% trailed GM by 300 basis points, which shows Ford still has lots to do in transforming what CEO Jim Farley calls the firm’s industrial system (product development, manufacturing, supply chain, and engineering). This change is happening slower than Farley would like and he said Ford left about $2 billion in profit on the table in 2022 for things that were within Ford’s control. Farley is right that these issues need to be corrected via improved execution, but we think he’d agree that talk is cheap and it’s time for Ford to show the market it can do better. Farley said 2023 is a year of execution and time to deliver, which we eagerly await.

We are leaving our fair value estimate in place as the firm’s 2023 EBIT guidance range is already in our model, but we will revisit all modeling assumptions after the 10-K is filed.

Ford Announces Supplemental Stock Dividend

Ford is at least paying investors to wait with an annual dividend yielding about 4.5% based on the Feb. 2 afterhours price. It also announced a $0.65 per share (about $2.6 billion) supplemental dividend payable March 1 to pay out cash proceeds from selling most of its Rivian stake throughout 2022. We calculate Ford had 10.5 million Rivian shares left at year-end worth $193.5 million. We like Ford using its ample liquidity to reward shareholders while still investing in electric vehicles. Total liquidity excluding Ford Credit was $48 billion including $32.3 billion of cash and securities. 2023 EBIT guidance is between $9 billion and $11 billion and adjusted free cash flow guidance of about $6 billion assumes no distributions to the auto business by Ford Credit.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

David Whiston, CFA, CPA, CFE

Strategist
More from Author

David Whiston, CFA, CPA, CFE, is a strategist, AM Industrials, for Morningstar*. He covers stocks in the automotive industry, including dealerships, parts manufacturers, and automakers. He has covered the automotive industry since joining Morningstar in 2007. He writes stock reports, ad hoc reports, stock analyst notes, and builds discounted cash flow models for each company covered. He also assesses their economic moat and makes frequent television and print media appearances in local, national, and international news outlets. Key stocks covered include GM, Ford, CarMax, and all six publicly traded franchise auto dealers, such as AutoNation and Penske Automotive Group.

Before joining Morningstar in 2007, Whiston spent four years in PricewaterhouseCoopers’ New York real estate audit practice and one year in its Chicago office working on real estate acquisition due diligence, gaining experience around assessing an asset’s cash flow.

Whiston holds a bachelor’s degree in business administration with a concentration in accounting from the University of Richmond’s Robins School of Business. He also holds a master’s degree in business administration with concentrations in finance, economics, and organizational behavior from the University of Chicago Booth School of Business. He holds the Chartered Financial Analyst® designation, and he is a Certified Public Accountant and a Certified Fraud Examiner.

In 2012, he ranked first in the specialty retailers and services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey. He ranked first in the same industry in 2011 .

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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