Morningstar

Ford's Q4 Suggests Market Ahead of Itself on Turnaround

We felt fourth-quarter market expectations for Ford were too high and this proved correct. We are not changing our fair value estimate but will reassess all modeling assumptions once the 10-K is filed.

Securities In This Article
Ford Motor Co
(F)

Our full-year Ford F 2021 adjusted diluted EPS of $1.72 was below the Refinitiv consensus of $1.93, so we felt fourth-quarter market expectations for Ford were too high and this proved correct with Ford reporting $1.59 for the full year. Fourth-quarter adjusted diluted EPS of $0.26 missed the Refinitiv consensus of $0.45 and sent the stock down over 5% in after hours Feb. 3 trading. Ford cited the omicron variant’s impact on its supply chain not allowing all demand to be met, particularly for Super Duty pickups and we note a large unfavorable adjusted tax variance year over year that perhaps was not adequately factored into consensus. The company also fought a $1.4 billion commodity cost headwind compared with fourth-quarter 2020 but a $2.5 billion tailwind on pricing, as inventory remains low and Americans want expensive light truck models, helped automotive adjusted EBIT grow by $381 million year over year. We are not changing our fair value estimate but will reassess all modeling assumptions once the 10-K is filed.

The chip shortage and COVID-19 supply chain issues should improve in 2022 versus the past two years so we are not worried about Ford’s long-term prospects. 2022 guidance was what we were more interested in given the chip shortage, inflation, and higher commodity costs. Guidance is in line with our model with total company adjusted EBIT between $11.5 billion and $12.5 billion, up 15%-25% from 2021, while we have been modeling $11.4 billion and free cash flow guidance (excluding Ford Credit but including its distributions) is for $5.5 billion to $6.5 billion versus our $6.4 billion. Management pointed out that the high end of adjusted EBIT guidance would mean a margin of 8% one year earlier than the 2023 goal. We are also encouraged that management raised its preliminary wholesale unit growth estimate of 10% given in October to 10%-15%, though for first quarter, Ford expects a high-single or low-double-digit decline due to the chip shortage and COVID-19.

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About the Author

David Whiston, CFA, CPA, CFE

Strategist
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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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