Ford Earnings Surprised. The Chip Shortage Is Easing.


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An employee walks past a Ford logo


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Automotive giant

Ford Motor

posted a surprise second-quarter profit, shrugging off the impact of the global semiconductor shortage. What’s more, the company increased its full-year earnings guidance.

Ford (ticker: F) stock is reacting positively, up 3.3% in after-hours trading.

Ford reported 13 cents in per-share earnings from $26.8 billion in sales for the quarter. Wall Street was looking for a 3-cent loss from $23 billion in sales. The auto maker’s vehicle mix helped boost sales and earnings; Ford prioritized producing higher value vehicles in the quarter given limited chip supply.

Wall Street projected a loss due to the global semiconductor shortage. Ford management estimated their company would make about 50% of planned production in the second quarter because of a lack of chips. Ford lost about 17% of first-quarter production.

Ford management said on the company’s earnings conference, which began at 5 p.m. eastern time, the chip situation is improving but “remains fluid.” Things in the second half of 2021 likely won’t be as bad as the second quarter, but the issue isn’t fully behind Ford or the auto industry.

The shortage did have a material impact. Operating profit in North America was just $200 million in the second quarter, down from $2.9 billion posted in the first quarter of 2021.

Back in April, Ford said the chip shortage should cost the company about $1.1 billion in full-year operating profit and that it expected to produce about $6.5 billion in full-year operating profit, including the impact of the shortage.

Despite the chip headwind, things are turning out better. In the first two quarters of the year, Ford earned roughly $6 billion in operating profit. For the second half of 2021, Ford expects to earn about $3 to $4 billion.

That means for the full year, Ford now expects about $9 to $10 billion in full-year operating profits, much better than the $2.8 billion earned in 2020. The new guidance is also much better than the $6.5 billion management guided to in April.

Free cash flow was negative $5.1 billion in the second quarter. Cash flow should improve as Ford production increases and the chip shortage fades. In fact, Ford sees full year free cash flow at about $4.5 billion. That’s an improvement over prior guidance. In April, Ford management projected about $1 billion in full year free cash flow.

The cash drag might be a negative in the quarter. But there were other positives, beyond the surprise profit. Ford Credit, for instance, posted a record profit of $1.6 billion. The auto industry, including automotive lending, is doing well coming out of the pandemic-affected 2020.

The after-hours rise adds to year-to-date gains. So far in 2021, Ford stock is up about 56%, far better than comparable 17% and 14% gains of the

S&P 500

and

Dow Jones Industrial Average,

respectively.

Barron’s recently wrote positively about Ford, believing new management could improve operations. Since that article appeared Ford stock is up about 52%. The S&P 500 over the same span has gained about 21%.

Write to Al Root at allen.root@dowjones.com

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