Stock of Ford Motor Company (NYSE: F), one of America’s Big Three automakers, collapsed 16.7% through 12:45 p.m. ET Thursday after the company reported a huge earnings miss last night.
Analysts had forecast Ford would earn $0.68 per share on $44 billion in Q2 sales. While Ford exceeded the revenue number easily, with $47.8 billion in quarterly sales, profits came in short of expectations at just $0.47 per share.
Ford’s Q2 earnings decline
Not all the news was bad. Ford sold 1.14 million vehicles in this year’s Q2, 23,000 more than last year’s Q2. Revenue rose 6% year over year. Operating cash flow grew 10%, to $5.5 billion, as did automotive free cash flow, rising to $3.2 billion, and Ford remained profitable on the bottom line.
Still, profits per share shrank by $0.01, instead of growing with growing sales, and the reason was profit margins. Ford’s net profit margin contracted by 40 basis points, to 3.8%. Management explained the hit to profits came mostly “from an increase in warranty reserves,” but that it hopes to work that number down “though efforts to lift the quality of new products.”
In other words, this was an earnings miss entirely of Ford’s own making. If it built better-quality vehicles, they wouldn’t break as often — and Ford wouldn’t so much lose money from having to repair broken trucks under warranty.
Is Ford stock a sell?
Still and all, Ford management put a happy face on its results, saying the company should end up with “solid” results by year-end. The company forecasts pre-tax profit of anywhere from $10 billion to $12 billion, and automotive free cash flow in the $7.5 billion to $8.5 billion range.
With Ford stock currently valued at about $47.4 billion, that works out to a price-to-free cash flow ratio of about 5.9x, which hardly seems expensive — especially when you consider that Ford stock is paying a 5.7% dividend yield! Assume any positive earnings growth at all, and it’s hard to see Ford stock as anything but a buy at today’s prices.
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Why Ford Motor Company Stock Crashed 17% Today was originally published by The Motley Fool
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