Ford (F) Shares Slide on Disappointing Q3 Results and Guidance

Ford Motor Company (F) saw its stock drop by 8.6 percent following the release of its third-quarter earnings report. While Ford did deliver modest beats on both earnings per share (EPS) and revenue, the upside fell short of market expectations, especially in light of General Motors’ (GM) recent standout performance. Compounding the disappointment, Ford lowered its full-year 2024 adjusted earnings before interest and taxes (EBIT) guidance, dampening investor sentiment as it struggled to match GM’s strong results and raised outlook last week.

Q3 Earnings and Revenue Performance

In the third quarter, Ford’s earnings and revenue surpassed analyst expectations, but only by a slim margin. This performance, while positive on the surface, lacked the impact needed to inspire confidence, particularly after GM’s impressive beat-and-raise that showcased a significant earnings upside. Ford’s modest results appear underwhelming in comparison, highlighting the competitive pressures within the auto industry as companies contend with cost pressures, supply chain disruptions, and inflationary impacts.

Lowered Full-Year Guidance and Cost Challenges

Ford revised its full-year 2024 adjusted EBIT guidance downward to approximately $10 billion, a reduction from the prior range of $10-12 billion. This adjustment reflects several ongoing challenges that have weighed on Ford’s profitability. Key among these are higher-than-expected warranty costs, which the company indicated have constrained its earnings power. Inflationary pressures at its Ford Otosan joint venture in Turkey have also contributed to the reduction in guidance.

In addition, Ford cited lower-than-anticipated volume in the second half of 2024 for its Ford Pro and Ford Blue segments, attributed to supplier disruptions. Despite these issues, Ford reported a balanced supply and demand environment for its vehicles, suggesting that demand remains relatively stable, even if production levels face constraints.

Ford continues to target adjusted free cash flow of $7.5-8.5 billion and capital expenditures of $8.0-8.5 billion, indicating its intent to maintain investment levels to support growth and transformation initiatives.

Cost and Warranty Management Initiatives

Management highlighted that while warranty costs have impacted the current quarter, Ford views cost control and warranty improvements as its greatest opportunity to enhance profitability. Ford is actively working to address these areas, with signs of progress emerging. However, given the magnitude of the impact on guidance, it may take time for these efforts to fully translate into financial performance improvements.

The company’s commitment to tackling warranty-related issues underscores its focus on long-term profitability and operational efficiency. This strategy will be crucial as Ford navigates a period of high production costs and as it works to differentiate itself in a competitive landscape.

Dividend Maintained Amidst Cost Pressures

Despite the increased costs and lowered EBIT guidance, Ford upheld its quarterly dividend of $0.15 per share, reflecting a yield of 5.8 percent. This dividend decision signals Ford’s commitment to shareholder returns, even as it faces heightened financial pressures. The high yield may offer some appeal to income-focused investors, particularly as Ford works through its cost management initiatives to restore profitability.

Comparative Performance with GM’s Results

Ford’s results come on the heels of a robust report from General Motors, which posted significant earnings outperformance and raised its full-year guidance. GM’s success, in stark contrast to Ford’s more measured results, has intensified scrutiny on Ford’s operational performance. Both companies have been dealing with similar macroeconomic and industry-specific challenges, yet GM’s decisive beat stands in contrast to Ford’s more modest upside. The lowered guidance compounds this contrast, potentially heightening competitive pressure and investor expectations for Ford.

Conclusion

Ford’s third-quarter earnings report illustrates a mixed picture for the automaker. While the company managed to beat earnings and revenue estimates, the lack of a strong upside and the reduction in full-year EBIT guidance underscore the challenges it faces. Higher warranty costs, inflationary pressures, and supplier disruptions have created headwinds that have hampered profitability.

Investors may find some reassurance in Ford’s maintained dividend and ongoing cost management efforts, but the tempered outlook and Ford’s inability to match GM’s recent performance have weighed on sentiment. Moving forward, Ford’s ability to deliver on its cost and warranty improvement initiatives will be key to restoring investor confidence and stabilizing its financial performance in a challenging environment.