(Barron's, Feb 6 2024)
Ford Motor’s earnings could do more than move the stock, shedding light on what the whole car industry can expect at a time of conflicting signals about the outlook.
U.S. new car sales rose more than 10% in 2023, but electric vehicle sales aren’t growing like they once were. And labor costs are rising, while new-car prices are slipping even as higher interest rates boost buyers’ monthly payments.
The car maker’s fourth-quarter numbers are scheduled for release after the close on Tuesday. Wall Street expects earnings per share of 12 cents from sales of $43.1 billion, according to FactSet. A year ago, Ford reported EPS of 51 cents from sales of $44 billion.
That is partly because of the United Auto Workers strike, which began in mid-September and wasn’t fully resolved until mid November. The fact that a widely understood one-time factor slammed results makes the current numbers less important than what Ford has to say about 2024.
GM’s results show how it can work. The stock gained 9.4% after the company said it expects a 2024 operating profit of about $13 billion, compared with $12.4 billion in 2023. At the time of the fourth-quarter report, Wall Street was looking for closer to $11 billion. GM earned $12.4 billion in 2023.
Analysts project that Ford will generate a 2024 operating profit of about $9.6 billion. Estimates haven’t changed much since GM reported results.
For the fourth quarter and full year 2023, Ford is expected to report operating profits of $900 million and $10.4 billion, respectively. The $900 million profit is down from the $2.2 billion reported in the third quarter. Ford has estimated that the UAW strike cost the company about $1.7 billion.
Freedom Capital Markets analyst Mike Ward expects that Ford will provide guidance much better than the $9.6 billion figure the Street expects. He’s looking for closer to $12.8 billion.
Scaled-back investment in electric vehicles should help 2024 earnings. Ford’s EV division, called Model e, lost $3.1 billion in the first nine months of the year.
Ward rates Ford shares Buy and has a $20 price target for the stock, but his peers aren’t as optimistic. The average analyst price target for Ford stock is about $12.50, while the shares closed at $11.59 on Monday. Only 37% of analysts covering Ford stock rate shares Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 55%.
Options markets imply Ford stock will move about 6%, up or down, following earnings. Shares have fallen an average of about 5% following the past four quarterly reports, moving lower each time.
Coming into Tuesday’s trading, Ford stock was down about 8% over the past 12 months. The S&P 500 were up about 20% and 30%, respectively.
Rising interest rates, higher labor costs, and slowing demand growth for electric vehicles have weighed on investor sentiment for months. Still, amid those headwinds, and losses in the Model e division, Ford had one of its best years ever in 2023.
Ford hosts a conference call a 5 p.m. Eastern time to discuss results.