Ford Motor's Stock Decline

By Nora Eckert

Overview

DETROIT (Reuters) – Ford Motor (NYSE:F) stock has tumbled about 8% this week due to falling short on CEO Jim Farley's mission to improve efficiency in traditional gasoline-engine operations. These profits are crucial for funding costly electric vehicle plans.

Challenges Faced

Farley discussed quality and warranty problems, supplier issues, and waste in Ford's 121-year legacy business during a call with analysts on quarterly earnings. Ford now expects annual results to be at the lower end of its previous forecasts.

Farley's Statement

"The biggest opportunity for the company clearly is cost and warranty," Farley noted during the call. “I'm proud of the progress, but we're not satisfied at all.”

Analyst Concerns

Concerns arise on Wall Street regarding Ford's ability to eliminate persistent issues that Farley has previously highlighted. Additionally, some investors are upset about Ford's cash preservation strategy and dividend payout in contrast to GM's aggressive stock buybacks.

Stock Performance

So far this year, Ford shares are down 13%, whereas rival General Motors (NYSE:GM) is up 43%. Analysts draw comparisons between the two automakers as they face similar market challenges.

Analyst Comments

Morningstar analyst David Whiston commented, “I wouldn't say the results have been horrible at Ford in any one quarter, but second and third quarters had some disappointments, magnified this year by GM’s strong stock performance.”

Financial Comparison

When comparing Ford and GM, the difference in cost structures becomes evident through revenue and EBIT (earnings before interest and taxes). In the third quarter, GM reported $49 billion in revenue and EBIT of around $4.1 billion, while Ford reported $46 billion in revenue with significantly lower EBIT.

Cost Gap

According to Barclays analyst Dan Levy, "Ford has yet to narrow the $7bn cost gap that it cited vs. Competitors." The timeline for improvement remains uncertain.

Annual Outlook Adjustments

Ford cited quality issues and specific events such as hurricanes in the U.S. Southeast and inflation affecting a Turkish plant as reasons for cutting its yearly outlook for its commercial and gasoline-engine divisions. Earnings from gasoline-engine operations are now expected to be around $5 billion, reduced from $6-$6.5 billion.

Dividend vs. Buyback Strategies

Ford focuses on dividends, paying a quarterly dividend of 15 cents this year, while GM’s stock buyback strategy has satisfied its investors. GM announced a $10 billion buyback last year and added $6 billion in June.

Cash Management

CFO John Lawler stated that Ford plans to distribute 40% to 50% of free cash flow to shareholders but aims to retain the majority of cash due to current economic uncertainty.

Share Availability

As of the end of the third quarter, GM had 1.1 billion shares available for trading, down from 1.5 billion at the start of 2021. In contrast, Ford continues with 3.9 billion common stock shares since early 2021.