Ford's First Quarter Likely as Good as It Gets for 2021
It expects the second quarter to have similar wholesale problems to a year ago, but this time due to the semiconductor shortage.
Management expects Ford’s (F) first-quarter results to be the best quarter of 2021. Adjusted EBIT including Ford Credit of $4.8 billion was a record, and adjusted diluted EPS of $0.89 far surpassed the Refinitiv consensus of $0.21. We are leaving our fair value estimate of $15 unchanged. Management made no mention of resuming the dividend. It guided the second quarter as having similar wholesale problems to the second quarter of 2020, but this time due to the semiconductor shortage. We expect the dividend to be reinstated in the second half of the year. Ford’s automotive cash of $31.3 billion should enable the company to survive a rough second quarter still in solid financial health. In the second quarter of 2020, Ford burned nearly $5 billion, excluding Ford Credit, so a similar horrible second quarter does not permanently impair Ford, in our view. The second half of 2021, furthermore, should see a recovery.
The stock fell over 3% after hours on April 28, but we believe this decline isn't justified. The decline appears to be for Ford saying the rest of the year won’t be as good as the first quarter due to $2.5 billion of higher commodity costs year over year for the final three quarters. Further, management said the semiconductor shortage will cost the company $2.5 billion in EBIT and $3 billion of free cash flow for all of 2021. In February, Ford talked about lost 2021 EBIT from the shortage in a range of $1 billion-$2.5 billion. Excluding the shortage, management guided total 2021 EBIT of $8 billion-$9 billion. It now guides total EBIT of $5.5 billion-$6.5 billion, including the shortage. Therefore, the only change is Ford assuming the worst for second quarter. We don’t think this should be a surprise to the market. It’s been clear for a while that the shortage isn't going to resolve itself quickly, as it takes foundries a long time to add capacity. We agree with management that the second quarter will be the worst of the shortage’s impact, and its effects will continue into next year.
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David Whiston does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.