After the closing bell on Feb. 4, Ford Motor Co. (F, Financial) reported earnings results for the fourth quarter and full year of 2020.
The automotive company blew analysts' quarterly earnings and revenue estimates out of the water, causing shares to pop in after-hours trading in response to the positive news.
Earnings results
In full-year 2020, revenue was $127.1 billion compared to $155.9 billion in 2019. On the earnings front, the GAAP loss per share was 32 cents compared to earnings of 1 cent per share 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 of 2019), while adjusted earnings per share came in at 34 cents (up 22 cents). Revenue totaled $36 billion, which was 9% lower than the prior-year quarter. Analysts had been expecting an adjusted loss per share of 7 cents on revenue of $33.89 billion.
In its sales report last month, Ford said that fourth-quarter U.S. sales fell 9.8% to 542,749 vehicles, while China sales grew 30% and Europe sales fell 15%.
"The transformation of Ford is happening and so is our leadership of the EV revolution and development of autonomous driving," Ford President and CEO Jim Farley said. "We're now allocating a combined $29 billion in capital and tremendous talent to these two areas, and bringing customers high-volume, connected electric SUVs, commercial vans and pickup trucks."
The fourth quarter brought the launches of three highly anticipated Ford vehicles seen as the "linchpin" of its road ahead: the 2021 F-150, an all-new and all-electric Mustang Mach-E crossover and the Bronco Sport SUV. Ford recorded slower F-series production due to a measured ramp-up for the new F-150 model, while the new Mustang Mach-E and Bronco models incurred higher costs than expected.
As of the quarter's end, the company had $14.34 billion in cash and equivalents versus $9.06 billion at the end of the prior-year period. Meanwhile, debt stood at $137.67 billion, down slightly from 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, more efficiently allocating capital and investing in areas with high growth potential like EVs, connected services and autonomous vehicles.
"We are profoundly changing the trajectory of our earnings power," Chief Financial Officer John Lawler said, "unlocking the tremendous value Ford can create for customers, shareholders and other stakeholders."
Going into the first quarter of 2021, the company has said that it and other automakers are now being forced to idle some plants due to a global shortage of automotive chips. Due to the Covid-19 pandemic, chipmakers ramped up production of consumer electronics chips in anticipation of higher demand, sacrificing vehicle chips as the demand for them was expected to remain depressed. However, the automotive industry saw demand quickly rebound after the first waves of the virus, and the unexpected resurgence is now clashing with lack of supplies.
"The semiconductor situation is changing constantly, so it's premature to try to size what availability will mean for our full-year performance," Lawler said. "Right now, estimates from suppliers could suggest losing 10% to 20% of our planned first-quarter production."
Due to the uncertainty created by the chip shortage, the company did not provide any concrete guidance, but it did project $8 billion to $9 billion in adjusted Ebit and $3.5 billion to $4.5 billion in adjusted free cash flow for full-year 2021, assuming continued Ebit improvements in all regions except South America.
Valuation
According to the GuruFocus Value chart, shares of Ford are significantly overvalued. Based on the combination of the company's historical valuation multiples, past returns and growth and analyst estimates of future performance, the stock is likely to see poor returns in the long run if purchased at current levels.
In order to produce significant returns for the price, the company would need to speed up its growth ahead of expectations. This scenario isn't impossible as the automotive sector is highly cyclical, and Ford is upping investments in high-growth areas. As shown in the chart below comparing 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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