Ford Motor Company (NYSE:F) announces second-quarter earnings on Wednesday, July 26, before the markets open.
No one expects a home-run quarter from Detroit’s No. 2 auto manufacturer. However, given how well Fiat Chrysler Automobiles NV (NYSE:FCAU) stock has done year to date through July 24 — up 28.8% compared to -2.8% for Ford stock — new CEO Jim Hackett better have some seriously good news about the company’s plan to revive sales.
F-Series Can’t Carry Ford Forever
While it’s nice to see Ford sold 77,895 F-Series trucks in June, up 9.8% from last year and 429,680, an 8.8% gain through the first six months of the year — at $3,100 more per vehicle, twice the industry segment average — we’ve seen this plot line before.
While gas prices are relatively low and interest rates are still low, consumers are ratcheting up their auto debt, which eventually always comes back to bite the auto industry in the butt.
For now, it’s a big part of the Ford profit picture but is having little effect on Ford stock.
I would specifically like to hear three things from Jim Hackett about the next 12-24 months at Ford.
First, I want a significant announcement regarding share repurchases. My most recent InvestorPlace article about Ford stock took serious issue with the company’s lack of share repurchases in the past five years despite gains of just $1 over the past 66 months.
If Ford is such good value, I’d like Hackett to explain why Ford hasn’t used more of its $12.8 billion in annual free cash flow to buy back its stock?
Secondly, I want to know its plan for Smart Mobility LLC. After all, Hackett ran the self-driving division until he became CEO in May. If the experts are correct, Ford is up near the front of the industry when it comes to self-driving technology.
I just want to know when we can expect a commercially viable self-driving Ford vehicle. Heck, a self-driving, electric, F-150 would be the ultimate in cool.
When can we have that?
Lastly, investors want to know if China’s going to be a bust. By lowering prices several times in 2017 to rev up sales, the tactic finally gained traction in June with sales up 15% in the country, its best June since entering a joint-venture import partnership with Changan Auto in 2001.
The plans to build its vehicles in China are heating up. The company looks to make a Lincoln SUV especially for the Chinese market at Changan’s assembly plant in Shanghai with the luxury vehicle hitting the market by the end of 2019.
While the Lincoln’s a bit player in North America, it could become a market leader in China, which would help drive Ford’s global sales.
Is China the real deal, Mr. Hackett? Investors need to know.
Bottom Line on Ford Stock
Analysts expect Ford to deliver revenue of $37.1 billion in the second quarter, flat to last year, with earnings per share of 43 cents, 17% lower than a year earlier.
Ford’s business is going through a contraction in sales. Fortunately, it’s doing a good job maintaining profits while it figures out how to restart vehicle sales outside SUVs and trucks.
I’m not sure how it does that, but until gas prices start rising in a meaningful way, Ford will continue to sell a lot of F-Series trucks. I don’t drive an F-150—I drive a Jeep Cherokee and like it—but even I have a hard time finding fault with the F-150. It’s nice looking, comfortable to drive, and sturdy, all the things you look for in a truck.
I wouldn’t expect a lot of specifics in Wednesday’s earnings release and conference call. Instead, I would focus on the tone of Hackett in both venues. I’m sure he’ll be upbeat but try to read between the lines if you can.
If Ford beats, especially on the top line, I’d expect Ford stock to rally nicely. If it doesn’t, I think its low stock price has already taken into account its slowing business.
I’m neither optimistic or overly concerned about Ford’s earnings report.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.