Ford’s Q3 Earnings: Updates for Investors to Watch

Ford (F) is scheduled to report its third-quarter results on Wednesday after the market close. The stock has increased 21.4% year-to-date. So far, Ford has outperformed most of the other major auto players. General Motors (GM), Fiat Chrysler (FCAU), and Tesla (TSLA) have gained 8.1%, 1.3%, and -22.8%, respectively, during the same period.

Ford reported an adjusted EPS of $0.28 in the second quarter, which was weaker than analysts’ expectations of $0.31 per share. The company also lowered its guidance. The market punished the stock for the miss. As a result, the stock fell more than 7% after the earnings.

The company’s global market share also fell to 6.2% from 6.7% a year ago in the second quarter. The global market share fell due to the company’s lower sales volume. However, Ford’s revenues are nearly flat despite lower sales due to the shift in the product mix.

In the third-quarter delivery report, Ford reported that it’s transitioning away from sedans to SUVs and trucks. The move had a positive impact on the company’s revenues. The segments are the only bright spot in the otherwise decelerating US auto market. In Ford’s third-quarter deliveries press release, it said that the truck and SUV mix rose to 87% in the third quarter. The mix increased by 5 percentage points compared to the value last year. The product mix shift also led to a 6.2% increase in the company’s average transaction price for the quarter compared to the same period in 2018.

Due to attractive margins in trucks and SUVs, other automakers are also trying to increase their presence in this space. Read F, GM, FCAU: Who’s Winning the US Truck Sales Race? to learn more.

During the third quarter, Ford delivered 580,251 units, which indicates a decline of 4.9% YoY (year-over-year). The delivery was better than analysts’ estimates. Notably, analysts expected a decline of 6.1%. Ford’s truck sales were 309,920 units—an increase of 8.8% YoY. The deliveries of the company’s best-selling F-Series fell 6% in the third quarter and 2.4% in the first nine months of the year. Competition from General Motors and Fiat Chrysler hurt F-Series sales.

According to the consensus compiled by Thomson Reuters, analysts expect Ford to post revenues of $33.9 billion in the third quarter. The figure implies a decline of 1.9% YoY and 5% sequentially. The company has also recorded YoY declines in its revenues during the first and second quarters. The declines shouldn’t be a surprise. Most of the auto markets around the world struggle with weak demand.

China, an important market for Ford, has posted 15 months of YoY declines in auto sales in the last 16 months. During the third quarter, Ford’s Chinese sales fell 30.3% YoY and came in at 131,060 vehicles. During the first and second quarters, the company’s sales in China fell 35.8% and 21.7%, respectively. Ford’s sales in the first nine months fell 29.2%. The company has been facing lower sales in China since 2017. General Motors’ China sales fell 17.5% YoY during the third quarter. To learn more, read China’s Auto Market Slowdown Deepens-Ford, GM Reel.

Analysts expect Ford’s EPS to be $0.261 in the third quarter, which implies a fall of -10% compared to the third quarter of 2018 and 6.9% sequentially. Analysts are concerned that the company might miss the estimate.

As a result, Buckingham Research reduced its target price for Ford from $9 to $8 on October 1. The firm sees weakness in some end markets for the company. Joseph Amaturo, a Buckingham Research analyst, said, “We now have increased concern about U.S. volumes and net pricing, particularly on full-size pickups and SUVs. We are also becoming increasingly concerned about end-market demand in many of the markets (Ford) participates in.”

Currently, 18 analysts cover Ford. Among the analysts, 39% have “buy,” 56% have “hold,” and 6% have “sell” rating for the stock. Analysts’ consensus target price of $10.5 reflects a potential upside of 13.2% based on the company’s latest closing price.

In September, Moody’s Investor Service downgraded Ford by one notch to “Ba1” from “Baa3.” A “Ba1” rating is the highest rating in the junk bond category. Moody’s rationale for downgrading Ford mainly reflects the company’s operating and market challenges. The rating agency is also concerned about weak earnings and cash generation as the company pursues an ambitious and expensive restructuring plan. Due to the rate cut and Ford’s expensive restructuring plan, many market participants are concerned that it won’t be able to maintain its high dividend yield going forward. Read Should Ford Investors Brace for a Dividend Cut? to learn more.

Meanwhile, Ford boosted its Europe plan with new electric vehicle launches. The company also formed a joint venture in India. On October 17, the company announced that it would offer North America’s largest public charging network for electric vehicles. The FordPass Charging Network will be available to the company’s EV customers.

Ford investors will listen to the earnings call for the updated fiscal outlook. Investors will also pay attention to management’s comments on the company’s EV plans. The company has committed $11.5 billion in electrification efforts by 2022.