Why Ford’s stock is surging while GM shares are flat after Q3 earnings
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Detroit’s Renaissance Center is home to the General Motors global headquarters.
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DETROIT – Both Ford MotorAnd General MotorsWall Street expectations were higher for the third quarter than GM shares, however GM shares are still flat following Ford’s surge to a 52 week high in trading on Thursday morning.
Both automakers had similar results. The earnings consensus of analysts was easily exceeded and revenue expectations slightly exceeded. Both companies partially revised their guidance for 2021. According to analysts, Ford showed more progress than GM in the analysis and provided better comments.
Results pushed Ford’s sharesUp to 13% to $17.58 per share in trading on Thursday This is compared to GM stock going up as high as 2.4% at $55.58 per shares. GM’s share of the market is $80 billion and Ford’s $66 billion.
There was a wide range of differences among the third quarter earnings reports, from the outlooks for earnings and ongoing shortages in semiconductor chips to their auto-vehicle businesses and stock dividends.
These topics are discussed further in the wake of Wednesday’s earnings results by America’s largest automakers.
Earnings
Ford beat Wall Street’s estimatesGM had less. Also, it reported a less drastic decline in net revenue than the previous year. This was due to consumers flooding dealerships following the release of lockdowns being eased. coronavirus pandemic
Ford’s adjusted earnings per share were 51cs, which is a decrease of 27 cents from the average analyst estimate by Refinitiv. The company’s auto revenue reached $33.21 billion, which is higher than the expectations of $32.54 million. Its quarter net income fell 25% from last year to $1.8 billion.
GM reported an adjusted earnings per share of $1.52Refinitiv had expected it to be 96cs. The company’s expected revenue of $26.78 million was less than the $26.51 billion it earned. The quarter’s net income was $2.4billion, a decrease of 40% over a year ago.
In an investor note, Deutsche Bank analyst Emmanuel Rosner stated that “Yesterday’s negative reaction by the market to GM’s solid 3Q, but unchanged outlook for 2021, reflected disappointment that GM did not boost its guidance amid improving industrial conditions and investor concerns about that soft implied 4Q Ebit representing a low exit rate heading into 2022.”
Outlooks
Ford raised its adjusted full-year earnings guidance from $9 billion to $10 billion to $10.5 billion. This compares to GM, which maintained earnings guidance between $11.5 billion to $13.5 billion. However, Ford raised its expectations for earnings per share from $5.40 to $6.40 to $5.70.
Ford maintained its adjusted cash flow outlook of $4 billion to $5 billion for 2011, while GM saw a reduction in its free cash flow forecast to $1 billion from $1 billion to 2 billion. Officials said that the decline was due to the spending necessary to complete vehicles which were not previously equipped with chips.
This is lower than the Tesla 3Q revenue. Morgan Stanley analyst Adam Jonas stated Wednesday, in an investor note, that although GM FCF may be hit very hard this year by the lack of working capital, the industry is still in a strong position in terms price, mix and costs.
Assuming GM delivers fourth-quarter earnings near the high end of its forecast, that would imply its earnings before interest and taxes, a key performance measure, would be around $2 billion instead of the $2.6 billion Wall Street was hoping to see, Credit Suisse analyst Dan Levy said Wednesday in an investor note.
Levy described Ford’s call as the “most bullish” in an additional note.
Supply of chip
Ford’s optimistic outlook is directly linked to the semiconductor chips. been in short supply throughout this year.Parts issues have boosted profit but led to record low vehicle inventories. Automakers also had to shutter a few plants.
Ford’s third quarter chip supply was significantly better than the nearly loss. half of its expected vehicle productionThe second quarter. Comparatively, GM saw the chip availability increase from the third quarter of the previous year to the second quarter. It was a win-win situation. second-quarter results,However, the automaker stated that it expects to lose approximately 200,000 North American wholesale units during the second half of this year as compared to the first six months.
Brian Johnson, a Barclays analyst, noted that Ford had fewer units in the third quarter but that GM has the largest profit margins if we combine the previous two quarters.
“Combining the two quarters, Ford would have a 6.7% EBIT margin while GM would have a 10.6% EBIT margin (pro forma adjusting out all Bolt recall costs and recoveries) – showing that GM is still ahead on execution,” he said Thursday in an investor note.
AVs
Analysts seem to be more bullish on Ford’s plans to monetize its Argo AI autonomous vehicle business through a potential spinoff than GM’s plans – for now – to keep its Cruise operations in-house.
Johnson stated that Ford appears to be ready for Argo monetization, while GM emphasizes vertical integration between Cruise-GMM.” Johnson called it a “meaningful catalyst”, calling Ford’s involvement in the matter “meaningful”.
Ford presented to investors that it supported Argo AI’s acces to public finance and stated its support for the executives. This contrasts to Mary Barra, GM CEO, telling investors Wednesday that vertical integration is a “key differentiator” of its majority-owned subsidiary.
Dividend
Ford and GM stopped paying dividends in order to increase cash flow after the pandemic that decimated factories and other businesses last spring.
Ford stated Wednesday it will reinstate its regular dividendThe fourth quarter will begin at 10c per share for outstanding Class A and Class C stock. All shareholders will receive the payment on December 1. Ford CFO John Lawler stated that the quarterly dividend would cost around $400 million.
Wednesday’s announcement by GM regarding the reinstatement dividend was not made public. Paul Jacobson, GM CEO and CFO earlier this month stated to investors that the company would reinstate dividends when the market stabilizes.
Lawler explained that Ford’s reinstatement of its dividends is due to the strength and stability of the company’s underlying businesses. Ford+, as it is known, is Ford’s capital plan. He stated that Ford has no financial constraints and believes it is capable of financing an aggressive turnaround plan. This plan calls for investing in billions in electric- and autonomous cars, along with paying the dividend.
Analysts were shocked at the scale and timing for the dividend reinstatement. John Murphy, a BofA Securities analyst called Ford’s decision to reinstate its dividend “preemptive” due to the volatility of the auto market. Along with other analysts, he also noted that Ford needed to invest in its turnaround plans.
Analysts had expected Ford to reinstate its dividend in 2022, at approximately half of the amount. However, investors support this move. Barclays’ Johnson described it as “a positive effect for some of its investor base.”
– CNBC’s Michael BloomThis report was contributed by you.
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