Ford’s profits had a surprise profit. His stock is skipping.

Text size

Automotive giant

Ford engine

posted a surprise profit in the second quarter, ignoring the impact of the global semiconductor shortage. In addition, the company increased its profit forecast for the entire year.

Ford shares (ticker: F) reacted positively, up 3.3% after-market.

Ford reported 13 cents in earnings per share on $ 26.8 billion in sales for the quarter. Wall Street was looking for a loss of 3 cents on $ 23 billion in sales. The automaker’s vehicle mix helped drive sales and profits; Ford prioritized the production of higher-value vehicles in the quarter given the limited supply of chips.

Wall Street forecast a loss due to the global semiconductor shortage. Ford management has estimated that their company will achieve around 50% of expected second-quarter production due to a lack of chips. Ford lost about 17% of its production in the first quarter.

Ford management told the company’s earnings conference, which began at 5 p.m. EST, that the chip situation is improving but “remains fluid.” Things in the second half of 2021 probably won’t be as bad as they were in the second quarter, but the problem isn’t entirely behind Ford or the auto industry.

The shortage has had a big impact. Operating profit in North America was only $ 200 million in the second quarter, down from $ 2.9 billion in the first quarter of 2021.

In April, Ford said the chip shortage is expected to cost the company about $ 1.1 billion in full-year operating profit, and that it expects to produce about $ 6.5 billion in profit from it. full year operation, including the impact of the shortage.

Despite the headwind, things are going better. In the first two quarters of the year, Ford reported operating profit of about $ 6 billion. For the second half of 2021, Ford expects to earn around $ 3-4 billion.

This means that for the full year, Ford now expects operating income of around $ 9-10 billion, much better than the $ 2.8 billion earned in 2020. The new forecast are also much better than the $ 6.5 billion management forecast in April.

Free cash flow was negative $ 5.1 billion in the second quarter. Cash flow is expected to improve as Ford’s production increases and the chip shortage subsides. In fact, Ford sees annual free cash flow of around $ 4.5 billion. This is an improvement over the previous tips. As of April, Ford management forecast about $ 1 billion in full-year free cash flow.

The slowdown in cash flow could be negative during the quarter. But there were other positives, beyond the surprise profit. Ford Credit, for example, posted a record profit of $ 1.6 billion. The auto industry, including auto loans, is doing well emerging from the 2020 pandemic.

The after-hours increase is in addition to the cumulative gains for the year. So far in 2021, Ford’s stock is up about 56%, much better than the comparable gains of 17% and 14% of the

S&P 500

and

Dow Jones industrial average,

respectively.

Barron recently wrote positively about Ford, believing that new management could improve operations. Since this article appeared, Ford’s inventory has increased by approximately 52%. The S&P 500 over the same period gained around 21%.

Write to Al Root at [email protected]