This article looks at Ford Motor (NYSE:F)’s profitability from the perspective of several metrics, including the gross profit, operating profit, net profit and earnings per share.
Aside from these GAAP metrics, we also explore Ford’s non-GAAP metrics such as the adjusted EBIT (Earnings Before Interest And Taxes) and the adjusted EPS.
That said, a profitable company can do a lot of things that a non-profitable company can’t.
For example, a profitable company can pay out a dividend and initiate share buyback, thereby further boosting the stock prices.
It’s no exception for Ford Motor and profitability has been one of the main reasons that dividend income seekers invested in the company’s shares.
For your information, Ford Motor has already re-instated the suspended cash dividends in 4Q 2021 when profitability surged unexpectedly in several quarters in fiscal 2021.
For readers who are interested in Ford’s margins, please head out to this article – Ford’s Margins Analysis.
Without further delay, let’s head out to the following topics!
Ford’s Automotive Gross Profit
The automotive gross profit represents Ford’s gross profitability in the automotive sector.
Gross profitability includes only the costs of sales while excluding other expenses such as research and development, SGA, interest payments and taxes.
In Ford’s case, Ford’s automotive gross profit had been on a decline since FY2017, reaching record lows in fiscal 2020.
However, Ford’s automotive gross profit rebounded subsequently in fiscal 2021 and came in at as much as $8.8 billion as of fiscal 3Q 2021 on a TTM basis.
Ford’s automotive gross profit grew 80% from a year ago in fiscal 3Q 2021.
Ford’s Operating Profit
In terms of Ford’s operating profit, the pattern of the plot is similar to that of the gross profit.
For your information, the operating profit is measured such that it accounts for almost all of the expenses and costs of doing business, including research and development and SGA expenses in addition to costs of sales.
However, the operating profit still excludes the costs of interest and taxes.
All told, according to the chart above, Ford’s operating profit had been plummetting since 2017, reaching record lows in fiscal 2020, driven primarily by the adverse impact of the COVID-19 pandemic.
In fiscal 2020, Ford’s operating profit was seen in the red, illustrating that the company was incurring significant operating losses.
Similar to the gross profit, Ford’s operating profit rebounded subsequently in fiscal 2021 and was back in the black in most results.
As of fiscal Q3 2021, Ford’s operating profit came in at $1.3 billion USD, representing a growth of more than 100% from a year ago.
Ford’s Profit Before Tax
Other than R&D and SGA expenses, Ford also incurs other expenses such as interest expenses.
Similarly, Ford also generates profits from non-operating activities such as investment-related interest income and royalty income from licensing as well as pension and OPEB related incomes.
All of these expenses and incomes are accounted for in Ford’s profit before taxes.
For this reason, you can see that Ford’s pre-tax profit can sometimes be vastly different from the gross and operating profits.
More importantly, Ford’s pre-tax profit had been significantly higher than the operating profit, indicating that Ford had made a lot of gains from investment and equity incomes.
As of fiscal Q3 2021, Ford’s pre-tax profit came in at $2.8 billion USD which was significantly higher than the operating profit reported in the same quarter.
For your information, Ford gained approximately $902 million in its investment in Rivian in fiscal 2021 alone.
Rivian is an electric vehicle startup that Ford has partially funded.
Also, Ford’s pre-tax losses in fiscal 2020 were considerably less compared to the respective operating losses, illustrating that investment gains and other incomes had significantly reduced Ford’s pre-tax losses.
Ford’s Net Profit
Ford’s net profit is measured to account for all costs of doing business, including income taxes.
As such, the net profit is also referred to as the profit after tax.
According to the chart, the plot of Ford’s net profit looks almost identical to the plot of profit before tax.
Similarly, Ford’s net profit suffered significantly fewer losses in fiscal 2020 compared to operating income due primarily to the investment gains and other income sources.
As of fiscal Q3 2021, Ford’s net profit came in at $2.9 billion on a TTM basis, representing a year-on-year growth rate of more than 100%.
Throughout fiscal 2021, Ford’s net profit recovered significantly and had been considerably higher than that of fiscal 2020.
Ford’s Adjusted EBIT
Ford uses its own metrics to measure operating efficiency.
One of these metrics is the adjusted EBIT or adjusted earnings before interest and taxes.
The adjusted EBIT is adjusted by the company to exclude interest on debt, taxes and pre-tax special items.
According to Ford, pre-tax special items include pension and OPEB remeasurement gains and losses, significant expenses, and other items that Ford management considers unrelated to ongoing operating activities.
While the adjusted EBIT is a non-GAAP measure, Ford generally provides guidance for this metric as it excludes items that are hard to predict.
As a result, the chart above includes the estimation of Ford’s 4Q 2021 adjusted EBIT provided in the 3Q 2021 earnings release.
As seen in the chart, Ford’s adjusted EBIT had been much higher than the net profit which we saw earlier.
For example, Ford suffered significant losses in fiscal 2020 but these losses were barely showing up in the adjusted EBIT chart above.
While Ford’s adjusted EBIT had been mostly positive, it hadn’t gone by without a scratch.
For instance, Ford’s adjusted EBIT was seen plummeting dramatically in fiscal 2020, indicating that the company’s operating efficiency had significantly been impacted by the negative effect of the COVID-19 outbreak.
However, Ford’s adjusted EBIT significantly recovered in subsequent quarters and came in at $10.6 billion in 3Q 2021, a record high for the company.
Moreover, Ford guided a dramatically higher EBIT for fiscal 2021 at about $11 billion on average, illustrating the company’s improved outlook for fiscal 2021 and most likely for fiscal 2022 too.
Keep in mind that guidance of the adjusted EBIT of $11 billion for fiscal 2021 is even higher than those reported prior to the COVID age, thereby underscoring the significance of Ford’s recovery post-COVID period.
Ford’s Earning Per Share (EPS)
Ford’s GAAP earnings per share or EPS clocked at $0.70 USD per share as of fiscal 3Q 2021 on a TTM basis, a record high for the company since fiscal 2020.
Similarly, Ford reported significantly higher EPS in fiscal 2021 compared to 2020, helped not only by investment gains and other income sources but also by the incredible turnaround of the business post-COVID age.
Ford’s Adjusted Earning Per Share (Adjusted EPS)
Similar to the adjusted EBIT, Ford’s adjusted EPS also is a non-GAAP metric and is adjusted by Ford itself to exclude pre-tax special items (described above), tax special items and restructuring impacts in non-controlling interest.
According to Ford, the adjusted EPS is meant to provide investors with useful information to evaluate the performance of Ford’s business excluding items not indicative of the underlying run rate of the business.
All told, Ford’s adjusted EPS comes at much higher figures compared to the GAAP EPS in most results.
As of fiscal Q3 2021, Ford’s adjusted EPS totaled as much as $1.90 USD on a TTM basis, a record high for the company since fiscal 2017.
Similar to most metrics, Ford’s adjusted EPS edged significantly higher in fiscal 2021, illustrating the turnaround of the company’s underlying business post-COVID age.
Also, Ford’s record EPS reported in fiscal 2021 was even slightly better than that in fiscal 2017, underscoring the extend of Ford’s recovery in fiscal 2021.
Can Ford’s recovery momentum keep up in 2022?
Judging from the current trend, it is most likely.
In summary, Ford Motor’s profitability is recovering in 2021 and this includes most GAAP metrics such as the gross profit, operating profit, pre-tax profit, net profit and EPS.
Additionally, Ford’s non-GAAP metrics such as the adjusted EBIT and adjusted EPS have got even better results in fiscal 2021.
That said, Ford’s adjusted EBIT and adjusted EPS clocked at record highs as of fiscal 3Q 2021, driven primarily by the recovery in its legacy businesses.
In short, Ford’s profitability improved drastically in fiscal 2021 compared to 2020, helped by a series of investment gains in companies specializing in autonomous driving, and electric vehicle startup, etc. as well as better-than-expected results fueled by a surge in vehicle demand.
As of Q3 2021, Ford’s results were substantially higher than that of FY2020 as reflected in all profitability metrics, be it GAAP or non-GAAP metrics.
Moreover, Ford also has embarked on a transformation plan that turns itself into a fully electric vehicle player, hoping to cash in on the expanding electric vehicle market.
Ford’s electrification plan has just started and has delivered less than 50,000 BEVs year-to-date.
Ford’s committed electrification plan may drive growth in the future and further expand Ford’s profits.
Therefore, is Ford’s stock a buy now?
I believe it is a conviction buy.
I am betting on not only the turnaround of its legacy businesses but also on new growth that comes primarily from the electrification plan.
Just my two cents worth.
References and Credits
1. All financial data in this article were obtained and referenced from Ford Motors Company’s annual and quarterly financial statements which can be found in Ford Investors Overview.
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The content in this article is for informational purposes only and is neither a recommendation nor a piece of financial advice to purchase a stock.
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