Ford Motor Co. reported better-than-expected second-quarter financial results and improved its outlook for the full year, even as it continues to battle supply-chain constraints that have caused delays in delivering hotly-anticipated new vehicles such as the Bronco.
Despite being hit hard by a months-long global shortage of computer chips, the Dearborn automaker posted $561 million in net income, or profits, in the second quarter, results it attributed to strong consumer demand, rising prices and improvements it's been making to the business.
"What we're seeing is the underlying strength in the business," said Chief Financial Officer John Lawler. "The demand for our vehicles, it's strong. We're getting great response for our customers. That's allowing us to manage through the situation."
The company reported second-quarter revenue of $26.8 billion, for a profit margin of 2.1%. Adjusted earnings before income and taxes — another closely-watched financial measure — came in at $1.1 billion for the quarter, for an adjusted EBIT margin of 4%.
And despite some expected headwinds later in the year, Ford raised its financial outlook for the year by about $3.5 billion. The company now expects full-year adjusted EBIT of between $9 billion and $10 billion.
Ford's stock was trading up about 3.7% in after-hours trading following the release. It closed the day at $13.86 per share.
The results came as a welcome surprise to Wall Street.
In a research note, Garrett Nelson, senior equity analyst at CFRA Research, said that Ford's improved outlook for the full year was "a big positive surprise given investor sentiment that Ford has and will remain one of the hardest hit from the semiconductor shortages."
"We reiterate our buy opinion on Ford," he said, "as the company has arguably the most positive momentum surrounding its new vehicle portfolio of any automaker and we are bullish on its operational turnaround under the leadership of CEO Jim Farley."
General Motors Co. and Stellantis NV are scheduled to report financial results next week.
Strong demand, supply constraints
Though Ford lost about 50% of its planned production volume — or, some 700,000 vehicles — in the second quarter, as it had estimated it would earlier this year, executives said strong demand drove better-than-expected operating results and allowed the company to avoid the loss it had anticipated.
The automaker reported earnings before interest and taxes of about $194 million in North America. It lost money in Europe, China and South America, but posted EBIT of $204 million in its international markets group.
Adjusted free cash flow for the quarter was negative $5.1 billion. At the end of the quarter, the company's cash and liquidity stood at $25.1 billion and $41 billion, respectively.
Ford Credit, the company's financial services arm, delivered record quarterly earnings before taxes of $1.6 billion.
In the second half of the year, executives said they expect some headwinds, including higher commodity costs, investments tied to the Ford+ plan, and lower earnings from Ford Credit. They expect second-half adjusted EBIT to come in below the first-half results, but for vehicle deliveries to improve over the first half.
Some of that volume will come from vehicles that have been assembled but are sitting in lots, awaiting missing components. Lawler said Ford has between 60,000 to 70,000 parked while they wait for parts, the majority of which the company expects to complete by the end of the third quarter.
Still, the toll the chip shortage took on Ford in Q2 was reflected in the automaker's U.S. market share dropping to 10.6%, down from 14.9% last year and putting it behind both of its crosstown competitors, according to data from auto information site Edmunds.com Inc.
"Ford's dramatic market share dip in the second quarter makes it clear that the automaker has been hit the hardest out of the Detroit 3 by inventory shortages," Jessica Caldwell, executive director of insights for Edmunds, said in a statement.
"Ford has not only been struggling with production issues surrounding its bread and butter F-Series, but since the company also previously shuttered its car lines it's had even less product to fall back on," she added.
Still, she said, there's a silver lining for the automaker: growth in the average transaction prices of its vehicles. Ford's ATP in the second quarter hit $47,961, up 6.3% over the same period last year.
Launch woes
The chip shortage and other supply-chain constraints have somewhat dampened Ford's rollout of a new lineup of vehicles that are garnering rave review from critics and enthusiasm from consumers.
A prime example is the highly-anticipated Bronco. The launch initially was delayed from spring until summer because of supplier issues. Then, in March, Ford told customers and dealers that an issue sourcing certain roofs meant that some customers would have to wait until 2022 for their vehicle.
The SUV began shipping to dealers in June, but then Ford said that Michigan Assembly Plant in Wayne would be down two weeks in July due to a parts shortage.
The delays have prompted impatience and frustration from some customers, while others are taking the situation in stride.
More than anything else, Debbie Small, 57, has been frustrated by the lack of communication from the dealership in Brooksville, Florida, through which she ordered her Bronco. Small grew up in Dearborn in a family full of Ford autoworkers, so she was eager to put a deposit down on a Bronco when reservations opened last July.
But since then, she told The Detroit News, she's heard very little about the status of her order.
"Here I sit with one of the first reservation numbers, and I'm getting nothing," she said. "I've come close to buying something else, but I really want the Bronco. I've wanted a Bronco since I was young and there were Broncos out and readily available."
Jeff Moder, 56, of College Station, Texas, recently got an update that his Bronco is slated to be built the third week of August, which he's hoping holds true.
"Ford has done a lot of things right in this. And when you're dealing with a vendor, a lot of times you can't control that. You try and you do your best," he said. "I don't have any real complaints about any of it, other than, yeah, I wish I had it."
Lorenzo Romero IV, 25, of Austin, has been waiting for the new Ford Bronco SUV since reports of its resurrection first began to swirl years ago. He and his father both put in reservations and orders as soon as they opened up, but with no build date on either of those vehicles despite switching to the soft-top option, they're looking for other ways to buy the Bronco.
"We don't want to wait another six, seven months for Bronco, because we've already waited for four or five years," he said.
He's been frustrated by the lack of communication from Ford and the dealership: "As popular as this Bronco project has been, I feel like the communication should be better.
"It's one of those weird things where we're torn between, this is kind of annoying to deal with," he said, "but also it really is worth it and they really did do a great job in developing this Bronco."
Lawler said Wednesday he could not provide exact timing on when the supply issues for Bronco will be resolved, but said the company is "very focused on getting the issues resolved and the plant running at the rate that we see appropriate for the Bronco."
'Spring-loaded for growth'
Amid strong demand for new vehicles such as the Bronco, and other new entrants including the forthcoming Maverick pickup truck and the electric F-150 Lightning, Farley said Wednesday that the company is primed for a rebound once the chip supply catches up with demand.
"The primary advantage we have right now is the strength of our product portfolio — and it's about to get a lot stronger," he said. "After effectively managing through the first half, we are spring-loaded for growth in the second half and beyond because of those red-hot products."
He touted the early success of Ford's first all-electric vehicle, the Mustang Mach-E, which is the second best-selling electric SUV in the country just months after launching and which executives reported Wednesday is already profitable.
Executives reported that Ford's order bank for customers in the U.S. ended the quarter with seven times more orders than a year ago — and Farley told Wall Street analysts that the company will lean more heavily on an order bank system in the future as it realizes the financial upside of having fewer vehicles on dealer lots.
"Navigating these [supply] constraints has led us to make important permanent changes in our business model at Ford," he said. "We're really committed to both going to an order-based system, and keeping our inventories between 50 and 60 days' supply."
And the company now is focused on executing a new growth plan dubbed Ford+. The plan centers on electrification, commercial vehicles and digital connectivity as the company looks to reorient its business model away from infrequent transactions and toward new, reoccurring revenue streams.
"Ford is also poised for a big comeback in the near future once it starts to replenish its chip supply for its F-Series and can make good on the rollout of some of its highly anticipated vehicles like the F-150 Lightning, Maverick and newly on sale Bronco," said Caldwell, of Edmunds.
