Ford Motor (NYSE:F) profitability is another hot topic of interest among not only investors but also creditors.
The reason is that profitability is often a criterion for buying a company’s stock for investors.
For creditors, they will look at profitability as one of the main factors before giving out loans.
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 shares 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.
In this article, we will look at Ford’s profitability from the perspective of the company’s gross profit, operating profit, profit before tax and net profit.
Before we start, I would like to stress that the following profitability discussion is based on Ford’s Generally Accepted Accounting Practices (GAAP) standard.
For readers who are interested in Ford’s margins, please head out to this webpage: Ford’s Margins Analysis.
Let’s soldier on!
Ford’s Automotive Gross Profit (Quarterly)
The automotive gross profit tells us about Ford’s gross profitability in the automotive sector.
Gross profitability is measured when only the costs of sales were accounted for while ignoring other expenses such as research and development, SGA, interest payments and taxes.
In Ford’s case, Ford’s automotive gross profit has been going downhill since 2017 according to the above chart.
On a quarterly basis, Ford’s automotive gross profitability reached the lowest at -$1.3 billion in 2020 Q2, implying that the company has made a loss at the gross income level.
In other words, Ford sold significantly fewer volumes in terms of automotive products in 2Q 2020, driving profitability to a record low in the same quarter.
In Q2 2020, Ford’s automotive gross profit dropped from $2.1 billion reported a year ago to -$1.3 billion, representing a year on year decline of more than 100%.
Ford’s Automotive Gross Profit (TTM)
On a trailing 12-months (TTM) basis, Ford’s automotive gross profit was seen declining since 2017 and reached less than $4 billion as of 2Q 2020, a record low for the company.
Year over year, Ford’s TTM automotive gross profitability has declined more than 70% from as much as $11.5 billion reported a year ago to only $3 billion in 2020 2Q.
Again, the decreasing gross profitability over the years has been largely driven by Ford’s declining vehicle shipment volumes, leading to higher costs of sales.
Additionally, Ford’s gross profitability has been further impacted by the COVID-19 pandemic since the early of 2020, as reflected by the steep drop in the company gross profits throughout 2020.
Ford’s Operating Profit (Quarterly)
In terms of Ford’s operating profit, the pattern of the plot is similar to that of the gross margin.
For your information, the operating profit is measured such that it accounts for almost all 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 ignores the costs of interest and taxes.
As seen in the chart above, Ford’s quarterly operating profit has been plummetting since 2017 and the figure has started to turn negative in 3Q19.
In 2Q 2020, Ford’s operating profit plunged to as low as -$2.7 billion, a record low for the company.
In other words, Ford has been operating at a loss since 2019 on a GAAP basis when all costs of doing business have been accounted for.
Ford’s Operating Profit (TTM)
Similarly, Ford’s TTM operating profit is showing the same downtrend since 2017.
The figure plunged to a record low at -$5 billion in Q2 2020, indicating that Ford has lost over $5 billion in the last 12 months in terms of operating profitability by 2Q 2020.
The losses resulted from Ford’s core business operations throughout 2020 are expected since Ford has already incurred losses at the gross profitability level.
Ford’s operating losses have been worse than its gross losses when other costs of doing business such as research and development and SGA expenses are included in the measurement.
Ford’s Profitability Before Tax (Quarterly)
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.
All of these expenses and incomes are accounted for in Ford’s profit before taxes.
For this reason, you can see that Ford’s profitability before taxes can sometimes be vastly different from the profitability at the gross and operating level.
According to the chart above, Ford made a profit before taxes of over $1 billion in 2020 2Q whereas the company incurred a loss of -$2.7 billion in operating profitability in the same quarter.
The reason for the huge difference in profitability can be attributed to an investment gain of as much as $3.5 billion that Ford obtained in 2Q 2020 from the investment in Argo AI and Volkswagen AG.
Ford’s Profitability Before Tax (TTM)
On a trailing 12-months (TTM) basis, Ford’s profitability before taxes has reversed from a further plunge in 2Q 2020 due largely to the investment gain that it obtained in the same quarter.
As of 2020 Q2, Ford’s losses before taxes totaled a little more than $2 billion, which was only half of the losses that it incurred in the same quarter in operating losses.
Take note that the investment gain that Ford obtained in 2Q 2020 represents only a paper gain if the company didn’t sell the holdings.
Additionally, this type of gain is not sustainable in the long term and is based entirely on the investment itself.
As such, investors should take the huge windfall that Ford obtained in 2020 Q2 with a pinch of salt due to the unsustainable nature of the investment gain in the long run.
Nevertheless, the huge investment gain of $3.5 billion in 2020 Q2 has helped Ford to reverse the downtrend in losses before taxes, thereby leading to a smaller loss of only $2 billion compared to a loss of nearly $4 billion incurred in 2020 Q1 on a TTM basis.
Ford’s Net Profitability (Quarterly)
Ford’s net profitability is measured to account for income taxes.
As such, the net profit is also referred to as profit after tax.
According to the chart, the plot of Ford’s net profit looks similar to the plot of profit before tax.
Similarly, Ford reported as much as $1 billion in net profit in Q2 2020, due mainly to the investment gain that it obtained from the investment in Argo AI and Volkswagen AG.
Prior to 2020, Ford’s net profitability has been on a downtrend, hitting a new low at a loss of more than $1.5 billion in 4Q19.
However, Ford managed to reverse the profitability plunge in 2Q 2020 when it gained a huge windfall from the said investment.
Ford’s Net Profitability (TTM)
On a TTM basis, Ford incurred a net loss of $2 billion in 2020 Q2.
If not for the investment gain, Ford’s net loss in 2020 Q2 would have been far worse, possibly plunging below $4 billion considering that Ford has lost over $2.5 billion in operating income in the same quarter.
Prior to 2020, Ford’s net profitability has been plummeting exponentially and hit zero profit by 4Q19 on a TTM basis, indicating that the company’s weaknesses have already existed far before the arrival of the COVID-19 pandemic.
Ford made nearly $8 billion in net profitability in 4Q17 on a TTM basis as seen in the chart.
However, Ford’s fortune has vastly vanished now, driven mainly by the loss of vehicle shipment volumes and a deteriorating global economy that has capped the buying of new vehicles over the years.
In summary, Ford Motor’s profitability has been on a downtrend in the last 3 years since 2017, plunging to a record low of nearly -$2 billion of net loss as of 2Q 2020 on a TTM basis.
From a TTM perspective, Ford only managed to make a profit of roughly $3 billion at the gross income level in 2Q 2020.
While Ford may have gained a huge windfall in 2020 Q2 from an investment in Argo AI and Volkswagen AG, the gain is not sustainable in the long run and represents only a paper gain if it didn’t sell the investment.
Therefore, investors should pay more attention to Ford’s core profitability such as the gross and operating profitabilities which are more sustainable in the long term.
Is Ford Motor a profitable company?
My opinion is that it is not.
References and Credits
1. All financial data in this article were obtained and referenced from the annual and quarterly financial statements which can be found in Ford Investors Overview.
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