Ford Raises Adjusted Free Cash Flow Guidance, Warranty Costs Weigh on Shares

Image: Ford’s second quarter results weren’t great, but the company’s guidance calls for increased adjusted free cash flow in 2024.

By Brian Nelson, CFA

Ford Motor (F) reported disappointing second quarter results recently where both automotive revenue and non-GAAP earnings per share came in below expectations. Ford’s second-quarter revenue grew 6% year-over-year thanks to a “persistently fresh lineup of vehicles (including) momentum from the all-new F-150 pickup and record volumes of Transit commercial vans.”

However, company net income came in at $1.8 billion, down from $1.9 billion in the same period of 2023, while company adjusted earnings before interest and taxes [EBIT] was $2.8 billion in the quarter, down from $3.8 billion due to an increase in warranty reserves. Its company adjusted EBIT margin fell 2.7 percentage points, to 5.8%, while non-GAAP earnings per share dropped to $0.47 from $0.72 in the same period a year ago.

Management noted that customers are “buying every Super Duty truck and Transit van the company can make,” and that Ford is the number 1 gas [ICE], number 2 electric [EV], and number 3 hybrid vehicle brand in the United States. Operating cash flow in the quarter was $5.5 billion, up from ~$5 billion in the year-ago quarter, while company adjusted free cash flow came in at $3.2 billion, up ~$0.3 billion from last year’s quarter.

Looking to all of 2024, Ford maintained its guidance range for adjusted EBIT between $10-$12 billion. It raised its adjusted free cash flow guidance $1 billion to the range of $7.5-$8.5 billion. Traditional free cash flow for the first six months of 2024 totaled $2.7 billion, which was in excess of the company’s cash dividends paid of $1.9 billion over the same time. Ford ended the June quarter with $100.3 billion in long-term debt, including Ford Credit, and $40.2 billion in cash and marketable securities. 

Ford is facing issues due to rising warranty costs in its Ford Blue [ICE] division, while losses continue to mount in its electric vehicle division, Ford Model e, where it anticipates a full-year loss of $5-$5.5 billion due in part to continued pricing pressures. However, it was reassuring that management maintained its 2024 company adjusted EBIT guidance, while raising its adjusted free cash flow guidance for the year. Based on Ford’s quarterly dividend of $0.15 per share, the company yields 5.6% at the time of this writing. Our $15 per share fair value estimate remains unchanged.

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