– By Margaret Moran
After closing on February 4, Ford Motor Co. (NYSE: F) released its fourth quarter and year 2020 earnings results.
The automotive company blew up quarterly earnings and analysts’ revenue estimates, causing stocks to plummet in after-hours trading in response to positive news.
Earnings results
In 2020, revenue was $ 127.1 billion compared to $ 155.9 billion in 2019. Regarding earnings, GAAP loss per share was 32 cents compared to earnings of 1 cent per share in last year, while adjusted earnings per share were 41 cents compared to $ 1.19.
For the fourth quarter, the company recorded a GAAP loss per share of 70 cents (down 28 cents compared to the same quarter in 2019), while adjusted earnings per share were 34 cents (up 22 cents). Revenue totaled US $ 36 billion, 9% less than the previous year’s quarter. Analysts had expected an adjusted loss per share of 7 cents on revenue of $ 33.89 billion.
In its sales report last month, Ford said fourth-quarter sales in the U.S. fell 9.8% to 542,749 vehicles, while sales in China grew 30% and sales in Europe fell 15%.
“Ford’s transformation is happening, as well as our leadership in the EV revolution and the development of autonomous driving,” said Ford President and CEO Jim Farley. “We are now allocating $ 29 billion in capital and tremendous talent for these two areas, and bringing customers connected electric SUVs, commercial vans and high-volume pickup trucks.”
The fourth quarter saw the launch of three highly anticipated Ford vehicles seen as the “axle” of its road ahead: the 2021 F-150, a completely new, electric crossover from the Mustang Mach-E and the Bronco Sport SUV. Ford recorded slower production of the F series due to a measured increase for the new F-150 model, while the new Mustang Mach-E and Bronco models incurred higher than expected costs.
At the end of the quarter, the company had $ 14.34 billion in cash and cash equivalents against $ 9.06 billion at the end of the prior year period. Meanwhile, the debt stood at $ 137.67 billion, slightly below last year’s $ 140.02 billion.
Looking forward
With its global redesign strategy and focus on EVs already showing success, the company plans to continue the strategy, focusing on strengthening the balance sheet, allocating capital more efficiently and investing in areas with high growth potential such as EVs, connected services and vehicles autonomous.
“We are profoundly changing the trajectory of our profit power,” said CFO John Lawler, “revealing the tremendous value that Ford can create for customers, shareholders and other stakeholders.”
Going into the first quarter of 2021, the company said that it and other automakers are now being forced to stop some factories due to the global shortage of automotive chips. Due to the Covid-19 pandemic, chip makers increased the production of consumer electronic chips in anticipation of increased demand, sacrificing vehicle chips as demand for them would continue to decline. However, the automotive industry has seen demand recover quickly after the first waves of the virus, and the unexpected resurgence is now in conflict with a shortage of supplies.
“The situation for semiconductors is constantly changing, so it is premature to try to gauge what availability will mean for our performance for an entire year,” said Lawler. “At the moment, suppliers’ estimates may suggest a 10% to 20% loss of our planned production for the first quarter.”
Due to the uncertainty created by the chip shortage, the company did not provide any concrete guidance, but projected $ 8 billion to $ 9 billion in adjusted Ebit and $ 3.5 billion to $ 4.5 billion in free cash flow adjusted for the entire year 2021, assuming that Ebit Improvements continued in all regions except South America.
Evaluation
According to the GuruFocus value chart, Ford’s shares are significantly overvalued. Based on the combination of the company’s historical valuation multiples, past returns and growth and analysts’ estimates of future performance, the stock is likely to have weak long-term returns if purchased at current levels.
In order to produce significant price returns, the company would need to accelerate its growth above expectations. This scenario is not impossible, as the automotive sector is highly cyclical and Ford is increasing investments in high growth areas. As shown in the chart below, comparing the share price to earnings per share, the company has had several periods of higher earnings in the past, as well as periods of richer valuations.
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This article first appeared on GuruFocus.