The second quarter earnings season has proven challenging for major automakers in Detroit, with stocks facing significant pressure. Following a dramatic drop of over 8% for General Motors (GM) on July 22, 2023, after disclosing a $1.1 billion impact from tariffs imposed during the Trump administration, attention now turns to Ford (F), which is set to release its Q2 earnings report on July 30, 2023.
Ford’s upcoming earnings release comes on the heels of Stellantis, which recently announced an interim loss of nearly $2.7 billion for the first half of the year. The company attributed its financial struggles to the same tariffs and unexpected one-time charges. In an unusual move, Stellantis opted to publish interim results rather than actual earnings, a decision linked to considerable discrepancies between expected profits and market forecasts.
Analysts project that Ford’s Q2 revenues will dip by 2% year-over-year to $43.9 billion. Despite these expectations, Ford experienced a robust quarter in terms of deliveries, reporting a remarkable 14.2% increase in U.S. deliveries, significantly outpacing the industry-wide sales growth of just 1.4%. Notably, the company’s F-series trucks, which are critical to its profitability, achieved their best second-quarter performance since 2019.
Ford has already indicated a pre-tax hit of $1.5 billion from tariffs, and analysts anticipate an earnings per share (EPS) of $0.34 for Q2, reflecting a year-over-year decline of 27.7%. Although Ford is less exposed to tariffs than GM, which relies heavily on imports, the impact on its operations is still significant.
Key Areas to Monitor in Ford’s Earnings
As investors await Ford’s financial results, several critical factors will be closely scrutinized.
Quality and recall issues remain a pressing concern for Ford. Recently, the company recalled approximately 700,000 vehicles due to a fuel injector problem, which is expected to cost around $570 million. The ongoing legacy issues related to warranties pose a challenge for the automaker, impacting both its reputation and profitability. In light of these challenges, management’s commentary during the earnings call will be crucial for understanding the company’s strategy moving forward.
The electric vehicle (EV) sector is another focal point. While sales of EVs have slowed in the United States, GM has maintained an optimistic outlook for the segment. In contrast, Ford has warned of a pre-tax loss between $5 billion and $5.5 billion in its EV business for the year. The upcoming earnings call is expected to provide insights into Ford’s EV strategy, particularly as tax credits for EV purchases are set to expire after September.
Changes to the Corporate Average Fuel Economy (CAFE) regulations also merit attention. The recent One Big Beautiful Bill Act has eliminated penalties for automakers that do not meet emission standards. GM indicated limited immediate impact, viewing this year as a “transition year,” but noted that expenses might decrease in the future. Analysts will look for Ford’s perspective on how these regulatory changes could affect their operations.
Analyst Sentiment and Stock Forecast
Heading into the earnings announcement, analysts express caution regarding Ford’s stock. Out of 24 analysts covering the company, only three have rated it as a “Strong Buy.” The majority, 16, classify it as a “Hold,” while five analysts suggest a “Moderate Sell” or “Strong Sell.” Currently, Ford’s stock trades above its mean target price of $10.18, with the highest target set at $14, representing a 25% increase from the closing price on July 22.
While the recent sales performance suggests that Ford may avoid the same post-earnings selloff experienced by GM, substantial challenges remain. The company must address its ongoing recall issues and manage the associated costs effectively. Although there are positive signs in terms of sales, the current risk-reward profile may not be compelling enough to prompt new investments amidst tariff uncertainties.
As the earnings date approaches, investors and analysts alike will watch closely to see how Ford navigates these hurdles and what the future holds for one of America’s leading automakers.