Key Takeaways

  • Adjusted EPS was $0.34 vs. the -$0.07 analysts expected.
  • Revenue missed analyst expectations.
  • Total U.S. truck sales declined YOY.
  • Ford is continuing to invest in EV and autonomous driving technology, but is cutting F-150 production due to chip shortage.

What Happened

Ford reported Q4 FY 2020 adjusted EPS that surpassed analyst forecasts by a wide margin. Revenue, however, narrowly missed expectations. Ford's total U.S. truck sales for the quarter, results of which were published in January, declined compared to the same three-month period a year ago.

Ford indicated that it was allocating billions of dollars of capital towards investments in electric vehicle (EV) and self-driving technology. "The transformation of Ford is happening and so is our leadership of the EV revolution and development of autonomous driving," said President and CEO Jim Farley. Ford also confirmed it is cutting F-150 production due to a computer chip shortage.

(Below is Investopedia's original earnings preview, published February 2, 2021.)

What to Look For

Ford Motor Co. (F) has recently been forced to idle production at some of its factories due to shortages of semiconductor chips, which have become vital components in vehicles more heavily dependent on computing power than ever before. The chip shortage, partly due to soaring demand for electronics goods by homebound consumers, is increasing the challenges facing Ford as vehicle demand plunges amid the COVID-19 pandemic.

Investors will be focusing on whether Ford can recover from net losses during the first half of last year when the company reports earnings on February 4, 2021 for Q4 FY 2020. They are likely to be disappointed. Analysts are expecting an adjusted loss per share as revenue declines for the seventh time in eight quarters.

Based on sales for Ford's trucks, a key metric whose results were released in early January, investors already know it won't be a stellar quarter. Total U.S. truck sales fell sharply on a year-over-year (YOY) basis, making it the third quarterly decline in 2020 after truck sales rebounded slightly in Q3 FY 2020.

Shares of Ford, which lagged the broader market for most of the past year, have recently begun to outperform. The stock tumbled further than the rest of the market during the pandemic-induced crash between late February and late March 2020. It wasn't until the latter half of 2020 that the stock's performance gap with the rest of the market began to narrow. And only in mid-January 2021 did Ford shares start to pull ahead. As a result, Ford has provided a total return of 20.6% over the past 12 months, above the S&P 500's total return of 16.2%.

One Year Total Return for S&P 500 and Ford
Source: TradingView.

Ford posted adjusted earnings per share (EPS) for Q3 FY 2020 that rose 93.0% compared to the same quarter a year ago. The positive earnings came after two consecutive quarters of losses and was the fastest earnings growth Ford has posted in at least 16 quarters. Revenue rose 1.4%, the first gain since Q4 FY 2018. The company noted that it experienced higher-than-expected demand and a reversal of some of the adverse effects of the pandemic.

The second quarter was a low point for the company's financial results. Ford posted an adjusted loss per share of $0.35, its largest loss in at least 15 quarters. Revenue plunged 50.1%, the largest drop in at least 15 quarters. Ford indicated that virtually all of its global manufacturing was suspended for much of the quarter due to COVID-19 and related lockdown measures.

Analysts are currently forecasting another quarterly loss and declining revenue in Q4 FY 2020, though not as severe as the first two quarters of the year. Analysts expect an adjusted loss per share of $0.07, which would be the third quarterly loss in four quarters. Revenue is estimated to fall 8.5%. For full-year FY 2020, analysts expect essentially a profitless year, with adjusted EPS falling 99.4%. That would be the third straight year of falling profits as annual revenue plummets an estimated 18.2%, which would be the worst revenue performance in at least five years.

Ford Key Metrics
  Q4 2020 (FY) Q4 2019 (FY) Q4 2018 (FY)
Adjusted Earnings Per Share ($) -0.07 (estimate) 0.12 0.30
Revenue ($B) 36.3 (estimate) 39.7 41.8
Total U.S. Truck Sales  288,698 (actual) 330,075 284,859

Source: Visible Alpha; Ford Motor Co.

Investors are also watching total U.S. sales of Ford's trucks, its most popular vehicle type. Ford manufactures a range of light-, medium-, and heavy-duty trucks. Models include the F-150 series, Ranger, Super Duty, and more. In general, Ford's trucks tend to generate higher profit margins than its smaller, lighter vehicles. The company has been making a strategic transition in recent years to focus production on more profitable pickup trucks and SUVs, and invest in newer technologies like electric and self-driving vehicles.

Throughout FY 2019, Ford's total U.S. truck sales grew at an accelerating pace in each consecutive quarter. In Q1 FY 2019, U.S. truck sales rose 4.1% compared to the year-ago quarter. By Q4 FY 2019, U.S. truck sales were growing at a pace of 15.9%. However, things quickly changed in FY 2020. In the first quarter of last year, U.S. truck sales fell 5.4%, followed by a drop of 26.6% in Q2 FY 2020. In the third quarter, sales rose a meager 0.6% compared to the year-ago quarter. And in Q4, U.S. truck sales dropped again, this time by 12.5%. On an annual basis, total U.S. truck sales fell 11.3% in 2020. Ford's falling truck sales highlight the major challenge the company faces in engineering a sustained earnings rebound.