Both automakers had similar results. They beat analysts’ earnings consensus and slightly exceeded revenue expectations. Both partially increased their 2021 guidance. Analysts found that Ford achieved better results than GM and had more positive comments.
Ford shares rose by up to 13% to $17.58 per share in Thursday trading. This compares to GM’s stock rising by 2.4% to $55.58 per share. GM’s market capital is approximately $80 billion, while Ford’s is $66 billion.
There were many differences in the third quarter earnings reports, from their outlooks on earnings and continuing shortages of semiconductor chips to their auto-vehicle businesses and stock dividends.
These topics are discussed further in the wake of Wednesday’s earnings results from America’s two largest automakers.
Earnings
Ford outperformed Wall Street’s estimates by more than GM. The company also reported a lower decline in net income than it did a year ago, as consumers flock to dealers after the lifting of lockdowns and stores being reopened after being closed by the coronavirus pandemic.
Ford reported adjusted earnings per shares of 51 cents, compared to 27 cents as expected based upon average analyst estimates by Refinitiv. Ford’s revenue from automobile sales was $33.21 million, compared to expectations of $32.54 trillion. The quarter’s net income was $1.8billion, a 25% decrease from the previous year.
Refinitiv expected GM to report adjusted earnings per share at $1.52, while GM reported 96 cents. Its revenue was $26.78billion, compared to $26.51billion expected. Its quarter-end net income was $2.4 billion. This is a 40% decrease compared to a year ago.
“Yesterday’s negative market reaction to GM’s solid 3Q, but unchanged outlook for 2021, in our opinion, reflected some disappointment GM didn’t increase its guidance amid improving industry conditions and investor concerns that GM’s soft implied 4Q Ebit represents a low entry rate going into 2022,” Deutsche Bank analyst Emmanuel Rosner wrote in an investor note.
Outlooks
Ford raised its full-year adjusted earnings guidance from $9 billion to $10 billion to $10.5 billion. This compares to GM, which maintained its earnings guidance between $11.5 billion to $13.5 billion, but raised earnings expectations to $5.70-$6.70 per share, up from $5.40 and $6.40 a piece.
Ford maintained its adjusted cash flow outlook of $4 billion to $5 billion for the year, 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 spending on vehicles that had not been built before without chips.
This is lower than the Tesla 3Q revenue. Morgan Stanley analyst Adam Jonas, wrote Wednesday that while GM FCF is being hit hard by working capital, it is important to remember that 2021 was a historically strong year for the sector in terms of price mix, cost, and cost.
Credit Suisse analyst Dan Levy stated Wednesday that GM’s fourth-quarter earnings would be near the high end of its forecast. This would mean its earnings before interest, taxes and other performance measures would be around $2billion instead of $2.6billion Wall Street wanted to see.
Levy described Ford’s call in a separate note, calling it “the most bullish” Ford has made in a while.
Supply of chip
The rosier outlook of Ford was directly linked to the availability of semiconductor chips throughout this year. Parts issues have boosted profits, but also caused record-low vehicle inventories. Automakers are forced to occasionally shutter plants.
The third quarter saw a significant improvement in Ford’s chip supply, compared to the fact that the company lost nearly half its second quarter vehicle production. This compares to GM which saw a significant increase in chip availability between the third and second quarters. Although the second quarter results were improved by these decisions, the automaker stated that it expects to lose approximately 200,000 North American wholesale units during the back half of this year as compared to the first six months.
Brian Johnson, a Barclays analyst, noted that Ford’s supply was less in the third quarter. However, GM still has the largest profit margins if one takes the two previous quarters.
He stated Thursday that Ford would have a 6.7% margin and GM a 10.6% margin if they combined the quarters (pro forma adjusting for all Bolt recall costs recovers – showing that GM still has an edge on execution.”
AVs
Analysts are more positive about Ford’s plans for monetizing its Argo AI autonomous car business through a potential spinoff than GM’s plans – at least for the moment – to keep its cruise operations in-house.
Johnson stated that Ford appears to be ready to monetize Argo while GM emphasizes vertical integration between Cruises and GM.” Johnson called it a “meaningful catalyst”, for Ford.
Ford presented to investors that it supported Argo AI’s access of public financing. This contrasts with Mary Barra, GM CEO, telling investors Wednesday that vertical integration is a “key differentiator” for the majority-owned subsidiary.
Dividend
Ford and GM both suspended their dividends last spring to boost cash as the pandemic shut down factories and dealers.
Ford announced Wednesday that it will restore its regular dividend at 10 cents per share for outstanding Class A and Class C stock. As of Nov. 19, the payments will be made to shareholders on Dec. 1. According to John Lawler, Ford CFO, the quarterly dividend will cost approximately $400 million.
Wednesday’s announcement by GM regarding the reinstatement of its dividend was quiet. Paul Jacobson, GM’s Chief Financial Officer, stated earlier this month that the company would reinstate dividends if the market is more stable.
Lawler said that Ford’s decision to reinstate its dividends was due to the strength and stability of its underlying business. Ford is not cash constrained, Lawler stated. Ford+ is a plan to finance an aggressive turnaround plan. It includes billions of dollars in electric and autonomous cars, as well as the payment of the dividend.
Many analysts were surprised by the size and timing of this dividend reinstatement. John Murphy, a BofA Securities analyst, called Ford’s dividend reinstatement “preemptive” due to the volatility in the auto market. As well as other analysts, he also pointed out the necessity for Ford to invest its turnaround plan.
Analysts had expected Ford’s dividend would be reinstated in 2022 at approximately half of the distribution amount. However, investors support the move that Barclays’ Johnson described as “a positive for some of its investors”.
