Flagging Ford Stock Gets a Jumpstart After Smashing Q2 Estimates

Advertisement

Ford Motors (NYSE:F) saw a surge in its price after beating analyst expectations with better than expected second-quarter results, making F stock worth taking another look at.

Ford (F) trucks lined up on the lot of a Ford dealership.

Source: Jonathan Weiss / Shutterstock.com

Riding on the tailwinds of its success, the company plans to restructure its top management as CEO Jim Hackett retires after just three years.

The pandemic served as a death-knell for most major automakers as empty showrooms and plant shutdowns became the norm. With little to no sales in the books, analysts reduced their expectations for automakers’ quarterly results as the coronavirus continued to take its toll on the industry.

Auto-giant, Ford, reported earnings this week and while sales were low, the company was able to beat analysts’ expectations on all counts. Ford reported a net profit this quarter and a smaller operating loss than estimated.

With a number of new products in the pipeline and a jumpstart on the path to recovery (as reflected in the earnings), F stock should be on your watchlist in the coming months.

F Stock Q2 Breakdown

What started out as a tough year for Ford Motors eventually took a turn for the better as initial pandemic restrictions were eased. The company was able to reopen its production plants in Europe by May 4, followed by its factories in North America on May 18. By the end of the month, Ford reached 95% of its pre-pandemic production levels.

Ford’s analyst-crushing results were largely a derivative of the company’s ability to resume operations at its plants. According to CNBC, the company reported a 35 cent loss on each share with $19 billion in sales which was far better than the expected $1.17 loss per share. Additionally, Ford’s pretax loss was just $1.9 billion in comparison to management’s $5 billion estimate.

The automaker was also able to swing a profit of $1.1 billion this year which included a $3.5 billion gain on an investment in the vehicle startup Argo AI. Ford can capitalize on its 40% stake in the company to reap larger returns in the coming years.

In terms of liquidity, the automaker’s cash burn was up from the previous quarter at $5.3 billion which resulted in liquidity of $39.8 billion in the books. Looking into the second half of the year, Ford has adjusted profit expectations between $500 million to $1.5 billion- in line with Wall Street estimates.

While Ford did sustain a loss and saw a decline in sales from the previous year, investors can finally breathe a sigh of relief as the Q2 numbers are a promising sign on the auto giant’s path to recovery. When the results were announced, F stock surged 4.3% at the end of the day trading.

Ford’s Management Shakeup

Ford’s Q2 results came as a pleasant surprise to investors, given the dim economic outlook. In an effort to keep the momentum of its success going, the company announced a change in leadership this week.

Ford’s CEO, Jim Hackett, who served as the head of the company for just three years will retire from his position this year. He will be replaced by Ford’s Chief Operating Officer, Jim Farley. Hackett’s unexpected exit from the company comes after his $11 million restructuring plan did not garner the support of investors.

According to the Wall Street Journal, Hackett’s leadership style was likened to that of Silicon Valley and gave importance to a “design-thinking” ethos. This was not commonplace in Detroit, specifically the auto industry. Ultimately his efforts did not do much for the company’s bottom line and the stock price sank 40% during his tenure.

The former CEO’s successor, Jim Farley will take the reins this October and keep the momentum of the company going. The transition to the COO comes after Farley played a monumental role in reshaping Ford’s core business with the release of a new product line including the Bronco. This helped generate better than expected results this quarter, despite the pandemic.

The onus will now be on Farley to steer the Ford Motor ship towards growth and expansion. As part of his operational plan, the new CEO plans to increase profitability in the North American market and reduce underlying costs while not sacrificing on quality.

His ultimate goal will be to produce tangible results and instill investor confidence in the company. Executive Chairman, Bill Ford, is confident in Farley’s leadership capabilities and referred to him as a “car guy” who understands the business well.

The Bottom Line on Ford

Thanks to good “operational execution”, Ford Motors is on the path to quick recovery with its better than expected Q2 results. While the company is not completely out of the clear, the optimistic earnings are definitely a step in the right direction.

Ford hopes to keep the momentum of its success going with its new leader, Jim Farley and a new product line that is expected to be a smashing success in the North American market. F stock is definitely worth holding on to in the coming months.

Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for InvestorPlace since 2020. As of this writing, Divya Premkumar did not own any of the aforementioned stocks.

Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for Investor Place since 2020.


Article printed from InvestorPlace Media, https://investorplace.com/2020/08/f-stock-jumpstart-smashing-q2-estimates/.

©2024 InvestorPlace Media, LLC