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 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.
In this article, we will look at several Ford’s profitability metrics, including the company’s gross profit, operating profit, profit before tax, net profit and earnings per share (EPS).
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 on a decline since FY2017 but the numbers seemed to be recovering as of FY2020.
On a quarterly basis, Ford’s automotive gross profit reached the lowest level 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.
However, Ford’s quarterly gross profit slowly recovered in subsequent quarters and hit a record high at more than $4 billion as of 1Q 2021.
Ford’s Automotive Gross Profit (TTM)
The quarterly plot may not clearly display the trend of Ford’s automotive gross profit.
Therefore, the TTM or trailing 12-month plot is created in the chart above to show the trend of Ford’s automotive gross profit.
On a 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.
Ford’s TTM automotive gross profit has maintained at this level in subsequent quarters but the numbers reversed and trended higher to $6.5 billion in 2021 Q1, suggesting a looming turnaround for the company’s automotive sector.
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 subsequent quarters, Ford’s operating profit recovered from prior losses but was still in the red in 4Q 2020.
As of 1Q 2021, Ford’s quarterly operating profit reached more than $2 billion, driven mainly by the rising profitability in the automotive sector.
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, and it had stayed at this level for subsequent quarters, illustrating the extended losses that the company had suffered.
However, Ford’s operating loss narrowed significantly in 1Q 2021 to only -$386 million on a TTM basis.
While Ford has significantly turned around in recent quarters, its latest result shows that Ford was still not out of the woods yet.
In terms of operating strength, Ford was still at a loss as of 1Q 2021 from a TTM perspective.
Ford’s Profit 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 levels.
According to the chart above, Ford made a profit before taxes of $4 billion in 2021 1Q whereas the operating profit was only $2.5 billion in the same quarter.
The increase in the pre-tax profit was primarily attributable to a non-cash or unrealized gain of $902 million on Ford’s investment in Rivian.
For your information, Rivian is an electric vehicle startup that Ford has partially funded.
Ford’s Profit Before Tax (TTM)
On a trailing 12-months (TTM) basis, Ford’s pre-tax profit has reversed from further plunging starting in 2Q 2020 due largely to an investment gain in Argo AI and Volkswagen AG in the same quarter.
In subsequent quarters, Ford’s pre-tax profit rose significantly and reached $4 billion as of Q1 2021.
As mentioned, Ford’s rising pre-tax profit in 1Q 2021 was also driven by an investment gain in Rivian.
Keep in mind that Ford’s investment gain represents only a paper gain if the company didn’t sell the holdings.
Additionally, this type of gain may not be sustainable in the long term and will most likely be a one-time event.
As such, investors should view these investment gains lightly due to the unsustainable nature of the gain itself in the long run.
Without the investment gains, Ford will be having pre-tax losses from a TTM perspective, just like what it has at the operating level.
Nevertheless, the huge investment gains of $3.5 billion and $900 million obtained in 2020 Q2 and 2021 Q1, respectively, have helped Ford to reverse the pre-tax losses.
As a matter of fact, Ford has actually made a TTM pre-tax profit of up to $4 billion in fiscal 2021 Q1.
Ford’s Net Profit (Quarterly)
Ford’s net profit is measured to account for 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 similar to the plot of profit before tax.
Similarly, Ford reported slightly less profit after tax in 1Q 2021 at about $3 billion compared to nearly $4 billion in pre-tax profit.
In FY2017, Ford had consistently generated positive profits at $2 billion per quarter but the figures started to decline in FY2018.
However, Ford managed to reverse the profitability plunge in 2Q 2020 when it gained a huge windfall from the said investment.
Subsequently, another investment gain has propelled Ford’s net profit to a new high at more than $3 billion in 1Q 2021.
Ford’s Net Profit (TTM)
On a TTM basis, Ford incurred a net gain of nearly $4 billion in net profit in 2021 Q1, helped by a gain as a result of the company’s investment in Rivian.
If not for the investment gain, Ford’s net profit would have been much lower in the same quarter.
Prior to 2020, Ford’s net profits have been plummeting and hit zero by 4Q 2019 on a TTM basis, indicating that the company’s weak earnings have already existed far before the arrival of the COVID-19 pandemic.
The COVID-19 pandemic has turned Ford’s net profits into net losses in FY2020.
In FY2017, Ford made nearly $8 billion in net profit or net income 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.
Ford’s Earning Per Share (Quarterly)
On a quarterly basis, Ford’s EPS came to $0.81 USD per share in 1Q 2021, a record high for the company in the past 5 years.
Ford’s extraordinary result in 1Q 2021 was driven by surging profitability from the automotive sector and Ford Credit, and partially helped by an investment gain as a result of the company’s funding in Rivian.
Ford’s Earning Per Share (TTM)
Prior to FY2020, Ford’s EPS has been on a declining trend until it hit a new low at -$0.70 USD per share in 1Q 2020.
Since then, Ford’s EPS downtrend reversed and started to turn higher in subsequent quarters.
As of 2021 Q1, Ford’s TTM EPS hit $1.00 USD per share, a new high since FY2020.
In summary, Ford Motor’s profitability has been on a downtrend since 2017, plunging to a record low in 2Q 2020 from a TTM perspective as seen in all profitability metrics, including the gross profit, operating profit, pre-tax profit, net profit and EPS.
However, Ford’s fortune started to turn in subsequent quarters, 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 Q1 2021, Ford’s results were substantially higher than that of FY2020 as seen in all profitability metrics that have surged to new highs.
Ford also has embarked on a transformation plan to turn itself into a fully electric vehicle player, hoping to cash in on the expanding electric vehicle market.
While Ford has been able to reverse the losses seen in many of the profitability metrics, it was still operating at a loss as of Q1 2021 from a TTM perspective.
Therefore, investors should pay more attention to Ford’s operating strength, including the gross and operating profitabilities which are more sustainable in the long term.
Is Ford Motor a profitable company?
It is starting to.
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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