Ford’s F stock surged by over 8% in Oct. 27 after hours trading when it reported third-quarter results of adjusted diluted EPS of $0.51 that beat the Refinitiv consensus of $0.27. We are leaving our fair value estimate in place as we feel our thesis that Ford is well on its way to fixing its profit problems remains in place. Adjusted free cash flow excluding Ford Credit rose by $1.1 billion year over year to $7.7 billion, despite automotive EBIT falling 7.7% to $2.5 billion, due to favorable working capital. The company saw a 32% sequential rise in wholesale volume from marked improvement in semiconductors and the company ended the quarter with $31.5 billion of automotive cash and securities and $47.4 billion in automotive liquidity. This robust cash balance and management feeling confident on its ability to keep improving towards an 8% total company adjusted EBIT margin in 2023 (8.4% for third quarter), means Ford is reinstating its quarterly dividend at $0.10 a share payable on Dec. 1. The dividend was suspended after first-quarter 2020 due to the pandemic and over time we think it will return to its prepandemic level of $0.15 per share.
There were other bright spots in the third quarter including South America posting a $2 million operating profit, its first profitable quarter since 2013 per CFO John Lawler, and the segment is finally approaching a breakeven run rate after cutting nearly $1 billion of fixed costs. Management also increased its 2021 full-year total company adjusted EBIT guidance to a range of $10.5 billion-$11.5 billion, up from $9 billion-$10 billion. Ford said though that the pending Rivian IPO will cause the first quarter’s $902 million gain on its Rivian investment to be treated as a special item if the IPO occurs in the fourth quarter. The higher 2021 guidance net of excluding the $902 million gain is still about $600 million higher than previous guidance. Detailed 2022 guidance will be given at fourth-quarter earnings on Feb. 3.
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