Ford Motor Company (NYSE:F) missed Wall Street’s second-quarter earnings forecast on weakness in North America and China, which sent F stock tumbling in early Thursday trade.
One of the greatest headwinds for Ford stock is the fear that the demand cycle might be topping out. On that count, Ford earnings weren’t very reassuring. Sales in the U.S. and China came in below plan for the quarter. The company suffered a quarterly loss in the Asia Pacific region for the first time in three years.
Worse, the automaker said U.S. sales are expected to fall in the second half, putting Ford’s full-year forecast at risk. Ford said next year’s U.S. sales could be even softer.
Ford said earnings in the most recent quarter fell to $1.97 billion, or 49 cents a share, from $2.16 billion, or 54 cents a share, in the same period a year ago.
On an adjusted basis — which is what analysts care about — earnings came to 52 cents per share of F stock. Analysts on average were looking for earnings of 60 cents a share, according to a survey by Thomson Reuters. That’s a big earnings miss.
Revenue rose to $39.49 billion from $37.26 billion. The Street top-line forecast stood at $36.3 billion.
F Stock Set to Find a Floor?
Ford’s more downbeat outlook for U.S. sales is based upon a cut to its economic forecast. The automaker now sees U.S. economic growth of 1.9% to 2.3% this year, down from a prior forecast for growth of 2.1% to 2.6%.
The stronger dollar and recession in Brazil continue to hurt sales in South America. China remains a concern because its economy continues to slow. And then there’s the Brexit, which F thinks will cost the company up to $500 million annually from lower sales and adverse foreign exchange.
The killer, however, is Ford’s view that the U.S. market is starting to plateau after a long run of outsized gains. Hey, it was bound to happen.
The question is how well was Ford stock priced for such a scenario. Although F shares appear to be set for more sustained weakness, none of this should be a surprise. Isn’t that why Ford stock is down 9% over the past 52 weeks and trades at less than 7 times forward earnings?
Ford earnings could very well be peaking, but it’s not like anyone was willing to pay much for profits in the first place. We’re talking about a stock with a five-year average price-to-earnings multiple of 8.6, according to Thomson Reuters Stock Reports. That is to say, the earnings multiple has already come down in anticipation of tougher times ahead.
Bottom Line for Ford Stock
Ford stock has been a big disappointment on a price basis for a couple of years now in anticipation of the end of the car-buying cycle. Maybe now that we’ve gotten to this moment, the market will realize that much of the downside has already been priced in.
It will likely take some time for F stock to be a winner on a price basis, but the discounted valuation and whopper dividend yield of 4.8% makes takes the sting out of waiting.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.