All is not well with Ford and there is no reason for dealers to chase it

All is not well with Ford and there is no reason for dealers to chase it

On Monday morning, The Wall Street Journal reported that Ford Motor Co (f) would offer severance packages to some employees who have been with the company for eight years or more and whose performance is considered declining.

This is the start of broader changes the company is making in the way it manages US employees. These employees are offered the choice between a severance package or participation in a four to six-week performance improvement course.

The catch is that those who take the course and do not improve their performance lose any right to severance pay. Additionally, managers with underperforming employees who have been with the company for less than eight years can skip the improvement course and move toward separation with severance pay.

The payment

Last week, Ford Motor reported third-quarter adjusted earnings per share of $0.30 on sales of $37.2 billion. Bottom line numbers were in line with expectations, while revenue numbers were good enough for 12% year-over-year growth and outperformed Wall Street. This pressure also showed accelerated revenue growth from the second quarter. However, not everything is “just good” at Ford. On a GAAP basis, Ford prepared an EPS print showing a loss of $0.21. Year-to-date, that GAAP EPS is now down $0.81. Why is that?

Think like many companies of metaplatforms (META) For one thing, Ford doesn’t spend much money on where it sees its business going. Unlike META, Ford seems to understand that exorbitant spending sometimes needs to be cut. Ford took a $2.7 billion pre-tax non-cash impairment on its investment in Argo AI, resulting in a loss of $827 million for the quarter just reported.

Ford CEO Jim Farley signaled after the release that a pullback in efforts to develop Stage Four autonomous vehicles is on the horizon. Level 4 autonomous vehicles are capable of full autonomy in suitable environments with little or no assistance or intervention from a human driver. If the human takes over, the AI ​​will take over. Farley had pointed out that investing in Level 2 and Level 3 autonomous driving in the near future is more likely to result in a better outcome for the company while also being more economical for the company. Nothing above Stage 2, like Teslas (TSLA) “Autopilot” is available in stores today.

On the light side

Ford reported operating cash flow of $3.8 billion and adjusted free cash flow of $3.6 billion. As a result, the company now projects full-year adjusted EBIT of about $11.5 billion, which would represent a 15% increase over full-year 2021. The company also forecast full-year adjusted free cash flow of $9.5 billion to $10 billion due to the strength of its automotive business but also due to the company’s restructuring outside of North America.

balance sheet

Ford ended the third quarter with net cash of $40.173 billion and inventories of $15.213 billion. That cash balance is down 19% over the last nine months, while inventories are down 26.1% over the period. This is on total working capital of $108.088 billion, which is essentially flat (negligible) year-to-date. Current liabilities are $90.167 billion. This is also essentially unchanged since December 31, 2021. This brings the company’s current ratio to 1.20, which is very solid and unchanged over nine months.

I don’t necessarily like the increase in stock levels, but that’s not an issue yet. The recession is coming and the money would be worth more than bloated inventories. The company’s quick ratio is 1.03, which is still above one, which we like to see.

Total assets are $246.919 billion. The company did not pad this number with entries for intangible assets. Total liabilities minus shares are $204.83 billion. This includes long-term debt of $65.206 billion at Ford Credit and other long-term debt of $19.073 billion at the rest of the company. Of course, I wouldn’t want a company’s debt load to be more than double its available cash, but that balance sheet passes the smell test, especially over the short to medium term.

So should we?

It’s been a while – almost a year – since I’ve been with Ford. Does he have the time to revisit this company whose CEO I consider one of the best? The stock is trading at just 6 times forward looking earnings. As we can see, there are reasons for this.

General Motors (GM) is only traded five times by the way. Ford just announced a quarterly dividend of 0.15%, payable Dec. 1 to shareholders of record Nov. 15. At Friday’s close, that’s a monster return of 4.52%. This would be the highest yielding stock in my book if I got into it. Currently The Southern Co (SO) is my return champion at 4.1%.

Readers will see that Ford was rejected at the 38.2% Fibonacci retracement level of the January-early July sell-off. Since then, the stock has sold off heavily again and is now attempting to rally for a second try at this line. Ford will face potential resistance at its 50-day and 200-day SMAs ($13.26 and $14.72, respectively).

However, relative strength is solid and the daily MACD is improving rapidly despite the 12- and 26-day EMAs in negative territory.

In my opinion, Ford can be bought slowly with the intention of building a medium-sized (2% to 2.5% allocation?) long position for portfolios that need higher revenue generation. I would rather react to this intention on weakness. I could start at the 21-day EMA (currently $12.51) whenever that contact is made. I wouldn’t hunt.

(Ford is a holding in the Members Club of Action Alerts PLUS. Would you like to be notified before AAP F buys or sells? Find out more now.)

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