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Automotive manufacturer Ford (NYSE:F) reported Q2 CY2024 results exceeding Wall Street analysts' expectations, with revenue up 6.3% year on year to $47.81 billion. It made a non-GAAP profit of $0.47 per share, down from its profit of $0.72 per share in the same quarter last year.
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Ford (F) Q2 CY2024 Highlights:
- Revenue: $47.81 billion vs analyst estimates of $44.88 billion (6.5% beat)
- Operating income (non-GAAP): $2.76 billion vs analyst estimates of $3.74 billion (26.2% miss)
- Full year operating income (non-GAAP) guidance: $11.0 billion at the midpoint vs analyst estimates of $11.3 billion (2.8% miss)
- EPS (non-GAAP): $0.47 vs analyst expectations of $0.68 (31.2% miss)
- Gross Margin (GAAP): 15.3%, up from 11.9% in the same quarter last year
- Free Cash Flow of $3.41 billion is up from -$709 million in the previous quarter
- Sales Volumes rose 2.1% year on year (8.4% in the same quarter last year)
- Market Capitalization: $55.21 billion
Automobile ManufacturersMuch capital investment and technical know-how are needed to manufacture functional, safe, and aesthetically pleasing automobiles for the mass market. Barriers to entry are therefore high, and auto manufacturers with economies of scale can boast strong economic moats. However, this doesn’t insulate them from new entrants, as electric vehicles (EVs) have entered the market and are upending it. This has forced established manufacturers to not only contend with emerging EV-first competitors but also decide how much they want to invest in these disruptive technologies, which will likely cannibalize their legacy offerings.
Sales GrowthA company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones tend to grow for years. Over the last five years, Ford grew its sales at a weak 2.6% compounded annual growth rate. This shows it failed to expand in any major way and is a rough starting point for our analysis.
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Ford's annualized revenue growth of 10.4% over the last two years is above its five-year trend, suggesting its demand recently accelerated.
Ford also reports its sales volumes, which reached 1.14 million in the latest quarter. Over the last two years, Ford's sales volumes averaged 3.8% year-on-year growth. Because this number is lower than its revenue growth, we can see the company benefited from price increases.
This quarter, Ford reported solid year-on-year revenue growth of 6.3%, and its $47.81 billion of revenue outperformed Wall Street's estimates by 6.5%. Looking ahead, Wall Street expects revenue to decline 3% over the next 12 months, a deceleration from this quarter.
Operating MarginRead More Operating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Ford was profitable over the last five years but held back by its large expense base. It demonstrated lousy profitability for an industrials business, producing an average operating margin of 1.9%. This isn't too surprising given its low gross margin as a starting point.
On the bright side, Ford's annual operating margin rose by 6.1 percentage points over the last five years.
In Q2, Ford generated an operating profit margin of 3.9%, down 1.5 percentage points year on year. Conversely, the company's revenue and gross margin actually rose, so we can assume it was recently less efficient because its general expenses like sales, marketing, and administrative overhead grew faster than its revenue.
EPSRead MoreWe track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable. Ford's EPS grew at an unimpressive 4.5% compounded annual growth rate over the last five years. On the bright side, this performance was better than its 2.6% annualized revenue growth and tells us the company became more profitable as it expanded.
We can take a deeper look into Ford's earnings to better understand the drivers of its performance. As we mentioned earlier, Ford's operating margin declined this quarter but expanded by 6.1 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don't tell us as much about a company's fundamentals.
Like with revenue, we also analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. For Ford, its two-year annual EPS declines of 5.2% show its recent history was to blame for its underperformance over the last five years. These results were bad no matter how you slice the data.
In Q2, Ford reported EPS at $0.47, down from $0.72 in the same quarter last year. This print missed analysts' estimates. Over the next 12 months, Wall Street expects Ford to grow its earnings. Analysts are projecting its EPS of $1.65 in the last year to climb by 21% to $1.99.
Key Takeaways from Ford's Q2 Results We were impressed by how significantly Ford blew past analysts' revenue expectations this quarter. On the other hand, its operating income EPS missed by a large magnitude due to warranty issues. Additionally, its full year operating income guidance missed. Overall, this was a bad quarter for Ford. The stock traded down 11.3% to $12.11 immediately following the results.
