Ford Motor Company’s second-quarter earnings report fell short of Wall Street’s expectations, leading to a sharp decline in its stock price. On Wednesday, Ford announced an operating profit of $2.8 billion for Q2, marking a 26% decrease from the $3.8 billion reported in the same quarter last year. Wall Street had anticipated a profit of $3.7 billion, according to FactSet.
Stock Performance and Market Reaction:
The disappointing earnings led to a dramatic drop in Ford’s stock price. By Thursday’s closing bell, shares had fallen by 18.4% to $11.16, the largest drop since November 18, 2008, when the stock fell 25%. In contrast, the broader S&P 500 index fell by 0.5%, while the Dow Jones Industrial Average saw a slight increase of 0.2%.
Segment Performance:
Ford’s traditional car business, Ford Blue, reported an operating profit of $1.2 billion, which was $300 million higher than in the first quarter. However, this improvement was overshadowed by significant warranty costs, which rose by $800 million compared to the first quarter. These costs, largely attributed to vehicles from the 2021 model year and earlier, now account for roughly 4% of Ford’s sales—a substantial increase from an average of 1.6% of revenue between 2011 and 2019.
Analyst Mike Ward from Freedom Capital Markets highlighted that warranty expenses have been a growing issue for Ford, intensifying over the past year. Despite this, Ward maintains a “Buy” rating on Ford stock with a target price of $17 per share.
Ford’s electric vehicle (EV) segment, Model e, reported a loss of $1.1 billion, which was an improvement from the $1.3 billion loss in Q1. Meanwhile, the commercial business, Ford Pro, earned $2.6 billion, a decrease from the $3 billion reported in the first quarter of 2024. Ford Pro’s operating profit margins held steady at 15.1%, making it the most profitable segment of the company.
Guidance and Investor Expectations:
Despite the earnings miss, Ford’s full-year guidance remains unchanged. The company still expects to achieve approximately $11 billion in operating profit for 2024, the midpoint of its April guidance. For the second half of the year, Ford anticipates about $5.5 billion in operating profit, surpassing Wall Street’s projection of $4.6 billion.
The guidance offered a glimmer of hope, but investors were looking for a “beat and raise” quarter similar to General Motors’ performance. GM had reported stronger-than-expected Q2 numbers and raised its full-year profit guidance to $13 billion to $15 billion from the previous range of $12.5 billion to $14.5 billion, yet GM’s stock dropped more than 6% on the news.
Industry Trends:
The rough week for American automakers continued with Tesla’s stock dropping 12.3% on Wednesday after its Q2 earnings missed expectations. Tesla’s earnings per share came in at 52 cents, below the anticipated 61 cents, due to lower car pricing and increased competition.
Options markets had implied a 6% potential movement in Ford shares following its earnings report, based on historical data. However, the actual decline was significantly greater, reflecting the market’s heightened sensitivity to the company’s performance.