Ford Q2 2022 Earnings Report

[rperez817]

Q2 2022 Corporate Earnings (q4cdn.com)

 

Ford Achieves Solid Second-Quarter 2022 Operating Results, While Organizing, Deploying Toward Ambitious Ford+ Future | Ford Media Center

 

• Turns strong demand for must-have vehicles into strong results: revenue of $40.2 billion; $667 million in net income, 1.7% of revenue; adjusted EBIT of $3.7 billion, 9.3% of revenue
• Reports $2.9 billion in operating cash flow and adjusted free cash flow of $3.6 billion, with solid automotive profitability; raises quarterly dividend to 15 cents per share
• Demonstrates rapidly evolving capabilities, potential of Ford+ plan, including through appeal of Ford Pro value proposition to commercial customers
• Affirms guidance for full-year 2022 results: adjusted EBIT of $11.5 billion to $12.5 billion, up 15% to 25% from 2021; adjusted free cash flow of $5.5 billion to $6.5 billion
• Advances Ford+ growth plan, locking up battery capacity, raw materials to support 600,000 EV run rate by end of 2023, majority of volume for more than two million units by end of ’26

[rperez817]

Also during yesterday's earnings call, Ford said that starting in 2023, it will report financial results around its 3 core business units, presumably to make it clearer to investors and media the progress each business unit is making toward its goals

• Ford Blue - the legacy ICE (internal combustion engine) business
• Ford Model e - the BEV business along with software and connected services
• Ford Pro – the commercial and government vehicles business unit along with associated software and services

[akirby]

@iamweasel - I thought you said increased pricing wasn’t making up for volume losses.  9.3% margin and $11B+ is a big improvement on both counts.

[iamweasel]

10 hours ago, akirby said:

@iamweasel - I thought you said increased pricing wasn’t making up for volume losses.  9.3% margin and $11B+ is a big improvement on both counts.

 

Think what the profit would have been if they could produce at full capacity.  That's the issue....

 

Contribution margin of a vehicle produced is greater than the incentive cost to sell them in most cases, so any lost production is an opportunity cost.

 

At let me add this, too.  Just looked through some of the financials in the press release, they don't provide many details but one thing that stood-out was the volume increase.  For June, 22CY they produced 1,032,000 vehicles - in June 21CY it was only 764,000.  Think increasing production 35% may have had something to do with that year over year increase?   That's probably a big reason why the margin jumped from 3.9% in June 21CY to 9.3% for June 22CY.

 

For June YTD, production went from 1.83M units (2021) vs 1.99M units (2022.)  The June YTD margin went from 7.9% (2021) to 8.1% (2022.)  The volumes and margins are similar from year to year.

Edited July 29, 2022 by iamweasel

[akirby]

1 hour ago, iamweasel said:

 

Think what the profit would have been if they could produce at full capacity.  That's the issue....

 

Contribution margin of a vehicle produced is greater than the incentive cost to sell them in most cases, so any lost production is an opportunity cost.

 

At let me add this, too.  Just looked through some of the financials in the press release, they don't provide many details but one thing that stood-out was the volume increase.  For June, 22CY they produced 1,032,000 vehicles - in June 21CY it was only 764,000.  Think increasing production 35% may have had something to do with that year over year increase?   That's probably a big reason why the margin jumped from 3.9% in June 21CY to 9.3% for June 22CY.

 

For June YTD, production went from 1.83M units (2021) vs 1.99M units (2022.)  The June YTD margin went from 7.9% (2021) to 8.1% (2022.)  The volumes and margins are similar from year to year.

If you’re saying that they’re leaving money on the table with production constraints I’d have to say no shit Sherlock.  That’s obvious.  But only to the point where they have to start adding incentives - especially if they have to add shifts to produce them.

 

I wasn’t comparing 22 to 21 I was comparing the last 18 months with 2019.  The higher margins more than made up for lost volume.

[iamweasel]

38 minutes ago, akirby said:

If you’re saying that they’re leaving money on the table with production constraints I’d have to say no shit Sherlock.  That’s obvious.  But only to the point where they have to start adding incentives - especially if they have to add shifts to produce them.

 

I wasn’t comparing 22 to 21 I was comparing the last 18 months with 2019.  The higher margins more than made up for lost volume.

 

Increasing production and adding incentives is fine to a point.   Even from a few years ago the contribution margin (vehicle profit less fixed costs, including incentives) is down, though, so they do need production to increase over current levels. 

 

Now if they want to right-size production and close a plant or two, and use more 3-crew operations to obtain the same capacity as they have now, that would be a more efficient way of building vehicles.  You would not have as much fixed cost allocation per vehicle.

 

 

[jpd80]

10 hours ago, iamweasel said:

 

Increasing production and adding incentives is fine to a point.   Even from a few years ago the contribution margin (vehicle profit less fixed costs, including incentives) is down, though, so they do need production to increase over current levels. 

 

Now if they want to right-size production and close a plant or two, and use more 3-crew operations to obtain the same capacity as they have now, that would be a more efficient way of building vehicles.  You would not have as much fixed cost allocation per vehicle.

July sales numbers out in a few days as well as August 1 inventory numbers will give us an indication of whether whether Ford is gaining traction with sales production and inventory.

 

Its hard to know if chip supplies are getting better of it Ford is being  conservative with adding back inventory, I’m pretty sure that they’re testing the market with both prices and availability from smaller inventory levels but still trying to find the new sweet spot.

 

F Series and full sized SUVs are key products, maybe Explorer  and Bronco too but most other vehicles are expendable in terms of sales numbers. As long s Ford prioritises the big $$ profit earners, all will be right.

Edited July 29, 2022 by jpd80

[fuzzymoomoo]

1 hour ago, jpd80 said:

July sales numbers out in a few days as well as August 1 inventory numbers will give us an indication of whether whether Ford is gaining traction with sales production and inventory.

August inventory won't be a good indicator since the entire company is shut down the first 2 weeks of July. September will be a better indicator. 

[jpd80]

8 hours ago, fuzzymoomoo said:

August inventory won't be a good indicator since the entire company is shut down the first 2 weeks of July. September will be a better indicator. 

Yeah, I get that but Ford did go into July with a much higher F Series inventory, so definitely anticipating that July shutdown and trying to overcome any negative offset of primary income earners, F150 and Super Duty.

 

At the same time, I wonder if Ford is deliberately keeping inventory tight  because a) building mostly customer orders and b) limiting inventory by making only fast moving stock for dealer floor stock. The focus on Ford Blue profit is plain to see when every build is scrutinised and prioritised.

Edited July 29, 2022 by jpd80

[iamweasel]

4 hours ago, jpd80 said:

Yeah, I get that but Ford did go into July with a much higher F Series inventory, so definitely anticipating that July shutdown and trying to overcome any negative offset of primary income earners, F150 and Super Duty.

 

At the same time, I wonder if Ford is deliberately keeping inventory tight  because a) building mostly customer orders and b) limiting inventory by making only fast moving stock for dealer floor stock. The focus on Ford Blue profit is plain to see when every build is scrutinised and prioritised.

 

I don't think they are gaming the system to keep inventory tight.  They can't even build the customer orders for my company (who has 3 Ford dealerships with hundreds of customer orders in the system) **AND** they are cancelling legit customer orders, too, due to supply/production issues.  It's still bad out there - they are having major problems producing trucks.  

[jpd80]

2 hours ago, iamweasel said:

 

I don't think they are gaming the system to keep inventory tight.  They can't even build the customer orders for my company (who has 3 Ford dealerships with hundreds of customer orders in the system) **AND** they are cancelling legit customer orders, too, due to supply/production issues.  It's still bad out there - they are having major problems producing trucks.  

Oh I agree that there’s still insufficient chips available to get to right sizing production to market demand, it’s just the way Ford is prioritising the available builds that makes me wonder …..maybe this is more like battlefield surgery LOL, which limbs do I save/cut off…

[Captainp4]

Doesn't seem too bad considering all of the outside factors still happening.. the stated goal is 10% margin, right?

[jpd80]

3 hours ago, Captainp4 said:

Doesn't seem too bad considering all of the outside factors still happening.. the stated goal is 10% margin, right?

Uh huh and Ford knows that the more entry point pricing is raised, the higher profits become…..that works in the USA  but elsewhere it means that people stop buying as many of your products.

Edited July 30, 2022 by jpd80

[iamweasel]

19 hours ago, jpd80 said:

Oh I agree that there’s still insufficient chips available to get to right sizing production to market demand, it’s just the way Ford is prioritising the available builds that makes me wonder …..maybe this is more like battlefield surgery LOL, which limbs do I save/cut off…

 

I think it is.  Of course the smart thing to do when production is limited would be to build your highest profit models/trims, but those higher end models/trims require more parts/chips, so I think they are just building what they can based on what parts/chips they can actually get.  

[jpd80]

33 minutes ago, iamweasel said:

 

I think it is.  Of course the smart thing to do when production is limited would be to build your highest profit models/trims, but those higher end models/trims require more parts/chips, so I think they are just building what they can based on what parts/chips they can actually get.  

And that’s  the conundrum facing most brands, it’s also important to keep building a trim level profile that best matches the majority of buyers, not just all high series models…….and then there’s the issue with battery supplies for things like hybrids and PHEVs as elk as Lightning, eTransit and Mach E. Lots of people still wanting hybrids like Escape and of course, Maverick but also Explorer and Powerboost V6 F150s. Last month it looks like Ford built over 30,000 Super Dutys and 45,000 F150s so they know where their bread is buttered….

Edited July 30, 2022 by jpd80