Ford Motor Co.’s report third quarter was up 10% to $39.4 billion, but due to a significant change in its business strategy it posted an $827 million loss. On an adjusted basis, it reported $1.8 billion in earnings.
The company negative result came as a result of a $2.7 billion non-cash, pre-tax impairment on its investment in Argo AI, the Pittsburgh-based autonomous vehicle tech company it shared ownership of with Volkswagen AG.
Overall, even on an adjusted basis, the company’s Q3 results lagged those of last year. The company reported adjusted earnings of $1.8 billion, or 30 cents a share, with a margin of 4.6% compared with $3 billion in adjusted earnings, or 51 cents a share, and a margin of 8.4% for the same period last year.
However, the company is in the midst of its Ford + program, which is reconfiguring the how the business is run and where it’s focus will be going forward. In fact, the company plans to report its earnings differently beginning next year — a change so dramatic it’ll be offering classes for analysts and journalists to understand the changes.
Part of that restructuring comes change, which in this case resulted in the impairment. “We have made some tough capital allocation and restructuring decisions like the one today,” Ford CEO Jim Farley noted during the company’s earnings call Wednesday evening.
While the $2.7 billion did drive the company into the red, there were two other big factors at play during the third quarter hampering Ford’s performance: supply shortages and costs. The company noted it had “about 40,000 ‘vehicles on wheels’ — built, but awaiting needed parts” at the end of the quarter.
Officials said the “vehicles on wheels” will be completed during the fourth quarter and sold to dealers. Additionally, due to rising inflation and other pricing pressures, the company saw its supplier costs jump about a $1 billion during the quarter.
Despite these issues, officials noted the company’s third-quarter operating cash flow was $3.8 billion. Adjusted free cash flow was $3.6 billion, reflecting strong automotive cash generation. The company ended the quarter with cash and liquidity of $32 billion and $49 billion, respectively.
“When I look at the quarter, and our performance year-to-date, I actually see some real positives,” said CFO John Lawler during the car. He pointed to the strong results of the company’s product line-up, particularly its electric vehicles. Farley was quick to note Ford was the second-biggest seller of EVs in the U.S. this year.
Shareholders get good news
While the company took a loss, that paper hit didn’t prevent the company from delivering some good news, including offering a 15-cent per share dividend for the fourth quarter. For those holding shares as of the end of business Nov. 15, the dividend will be paid Dec. 1.
The company plans to repurchase 35 million shares in order offset any dilution of the company’s stock due to stock-based compensation of top executives. Executives revealed some updates to the company’s guidance.
Officials said they know believe full-year adjusted EBIT will come in at about $11.5 billion — 15% higher than in 2021. If so, it suggest the company’s enjoyed about 10% year-over-year growth in wholesale shipments; significantly higher earnings in North America and aggregate profitability in the rest of the world; and strong, but lower, EBT from Ford Credit.
Other assumptions include:
- No further deterioration in the supply chain
- Continued strong pent-up demand and orders for Ford’s newest products
- Persistent strength in pricing
- Higher commodity and broad-based inflationary costs of about $9.0 billion
- Strong, though lower, auction values at Ford Credit, along with higher borrowing costs, and
- Continuation of a strong dollar.
Ford raised its full-year adjusted free cash flow goal to between $9.5 billion and $10 billion — up from $5.5 billion to $6.5 billion — on strength in the company’s automotive operations, including restructured businesses in regions outside of North America.