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Ford Earnings: Pro Segment Profits Explode and Help Management Boost Guidance

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Ford Motor Co
(F)

Ford’s F second quarter showed remarkable strength from the Ford Pro commercial vehicle segment driving adjusted diluted EPS up 5.9% year over year to $0.72, beating the $0.55 Refinitiv consensus. We raise our per share fair value estimate to $20 from $19 on time value of money and 2023 revenue progressing ahead of our prior model.

The stock was down in July 27 afterhours trading, despite Ford raising 2023 guidance, likely due to the company delaying its global battery electric vehicle production run rate target of 600,000 by year-end 2023 to 2024. CEO Jim Farley on the call also said Ford is flexible on the timing of this metric reaching 2 million units (previously was 2026). Farley made the changes because he is not willing to gain BEV customers regardless of customer acquisition costs, which we think means he’s not willing to keep discounting BEVs. Ford recently cut the price of its F-150 Lightning BEV, but we are glad the firm is not willing to engage in a never ending price war with Tesla because we don’t believe it can win that cost battle anytime soon.

Ford Pro greatly benefitted from the new Super Duty pickup and continued growth of its software services that carry about 50% gross margin. About 80% of Ford’s software subscribers are in Pro. Segment EBIT nearly tripled to $2.4 billion, beating combustion segment, Ford Blue, earnings of $2.3 billion. Pro enjoyed a $1.9 billion favorable contribution from pricing. Segment EBIT margin rose 840 basis points to 15.3%, versus 9.2% at Blue and 8.4% for the whole company. Total company adjusted EBIT only rose by 1.7% as the BEV segment (Model e) and Blue both saw EBIT declines from factors such as foreign currency, higher material costs, warranty, and pension. Management raised 2023 Pro segment profit to nearly $8 billion from about $6 billion and Blue is now guided to about $8 billion from about $7 billion, contributing to total company adjusted EBIT now at $11 billion to $12 billion from $9 billion to $11 billion.

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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David Whiston

Strategist
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David Whiston, CFA, CPA, CFE, is a strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers the automotive industry, including dealerships, parts manufacturers, and automakers. He has covered the automotive industry since joining Morningstar in 2007.

Before Morningstar, 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.

Whiston holds a bachelor’s degree in business administration with a concentration in accounting from the University of Richmond. 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.

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