Ford Has Strong Second Quarter and Increases Dividend to Prepandemic Level
We see Ford stock undervalued with a $24 fair value estimate.
Ford (F) reported a strong second quarter that gave us no reason to change our fair value estimate from $24. As we were modeling, the firm announced a return to its prepandemic quarterly dividend of $0.15 per share, up from $0.10. Adjusted diluted EPS of $0.68, which excludes a $2.4 billion mark-to-market loss on Ford’s Rivian stake, beat the Refinitiv consensus of $0.45 and a 57% year-over-year increase in auto revenue to $37.9 billion beat consensus of $34.3 billion. The company had a weak second-quarter 2021 as a result of being hit hard by the Renesas chip plant fire in Japan, but Ford’s 2022 U.S. sales in recent months have shown strong growth in lucrative light-truck models such as the F-Series, Explorer, and Lincoln Navigator.
Pricing is also important because second-quarter commodity and freight cost increases year over year of $1.5 billion and $700 million, respectively, were not small. Net pricing was a $2.3 billion adjusted EBIT tailwind, mostly from North America and Europe, while volume and mix was a $4.4 billion boost. North America was all of the volume and mix tailwind which helped that segment post an impressive $3.3 billion of operating income and an 11.3% segment margin, up by $3.1 billion and 10 percentage points. We are glad to see Ford confirm its full-year guidance and say it expects a slight improvement in commodity cost headwinds in the second half versus first, though still a full-year headwind of about $4 billion.
However, other inflation headwinds for things like freight are now expected to total $3 billion this year, up from $2 billion expected last quarter. Also, the strong dollar against the euro and other currencies means a foreign-exchange headwind for the back half versus first half and an expected increase in new-vehicle supply means a moderation in Ford Credit’s pretax income due to expectation of lower auction values. Ford also sold 25.2 million of its 101.9 million Rivian shares.
David Whiston does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.