Ford’s second-quarter earnings disappointed analysts. The company reported an EPS of $0.28 compared to market expectations of $0.31. During the second quarter, Ford’s market share fell to 6.2% from 6.7% a year ago. Ford expected an EPS of $1.2–$1.35 for 2019 compared to its estimate of $1.30 last year. The EPS also disappointed investors, which caused the stock price to fall after the results. To learn more, read Ford and Tesla Stocks Bleed after Q2 Earnings.
Peers’ second-quarter results
Ferrari (RACE) reported strong second-quarter results. General Motors’ earnings fell during the second quarter but still beat analysts’ expectations. Fiat Chrysler Automobiles’ (FCAU) earnings also fell short of analysts’ estimates. Tesla (TSLA), which released its earnings on July 24, missed analysts’ estimates. The company reported a larger-than-expected loss of $1.22 per share compared to analysts’ estimate of a loss of $0.36 per share.
For Ford stock, the fall last week came amid rising recession fears, which impacted broader stock markets. There was a yield curve inversion last week. While part of the yield curve has been inverted for a long time, the inversion of the two-year to ten-year segment is the most-watched and relied upon indicator. Historically, the inversion of the two-year to ten-year curve predicted every recession in the past 50 years. The inversion spooked the markets, including automakers. To make matters worse, automakers’ second-quarter earnings season was lukewarm, which added to outlook woes.
Ford’s exposure to the US and Chinese markets
Ford has considerable exposure to the US market. Growing recession fear isn’t good news for auto demand. Automakers are already battling the faltering auto demand in the US. Due to lukewarm auto demand in the US, automakers want to focus on other large markets like China. However, China’s auto demand is taking a hit due to the trade war. China’s auto sales fell for the 13th consecutive month in July.
Will Ford stock weather the potential downturn?
During a J.P. Morgan Conference in New York, Ford’s North American CFO Matt Fields said that the company has a cash buffer of $20 billion for a potential downturn event. Ford is also said to be “proactively” evaluating its future moves to model the severity of a possible recession. Despite weaker demand, the demand for pickup trucks and SUVs rose in the US. US automakers, including Ford, want to cash in on this trend. General Motors (GM), Toyota (TM), Fiat Chrysler Automobiles, and Honda (HMC) want to expand their SUV and truck lineups to offset the impact of the decline in other products. Ford has invested about $11.5 billion to develop electric vehicles.
More than 108,000 vehicles recalled
In addition to the deteriorating macroeconomic backdrop, Ford stock was also negatively impacted last week due to recalls. On August 14, Ford announced that it’s recalling over 108,000 vehicles, including Fusions and Lincoln MKZs. The recall involves vehicles across the US, Canada, and Mexico. There’s an issue with the seat belt anchor pretensioners. The company said, “In affected vehicles, increased temperatures generated during deployment of the driver or front-passenger seat belt anchor pretensioner could degrade the tensile strength of the cable below the level needed to restrain an occupant. Seat belt assemblies that do not adequately restrain the occupant in a crash can increase the risk of injury.” The stock fell 2.8% on August 14.
Morgan Stanley upgraded Ford stock
While Ford stock has been on a downtrend lately, it has risen 17.1% year-to-date based on its closing price on August 16. The stock has still outperformed given the SP 500’s (SPY) gains of 15.6% during the same period. There’s still hope for the stock. In fact, some analysts including Morgan Stanley (MS) see the recent dip in Ford stock as a buying opportunity. On August 6, Morgan Stanley upgraded Ford to “overweight” from “equal weight.” Morgan Stanley thinks that Ford’s restructuring could outdo analysts’ estimates on savings. The bank is also optimistic about Ford’s emerging electric vehicle plan.