From F-150 to chip shortage: What investors should know before Ford reports first-quarter results on Wednesday

Published Tue, Apr 27 20212:43 PM EDTUpdated Tue, Apr 27 20216:58 PM EDT

Key Points

Wall Street analysts are optimistic, if not bullish, about Ford despite the coronavirus pandemic and an ongoing global chip shortage that has shuttered many of the automaker's North American plants.
Shares of Ford are up by about 140% during the past 12 months. They've risen 41% in 2021.
Investors will be watching Ford's earnings, but they'll be more interested in any change to its guidance for 2021 due to the chip shortage.

Ahead of the coronavirus pandemic shuttering auto plants nationwide last spring, Jim Farley, then Ford Motor 's second-in-command, said the automaker is at its best during a crisis. It's hard to argue with the now-CEO's comments as Ford prepares to release its first-quarter earnings Wednesday following a year of crises. Wall Street is optimistic, if not bullish, about the company despite the coronavirus pandemic and an ongoing global chip shortage that has shuttered many of the automaker's plants. Average estimates of analysts compiled by Refinitiv expect Ford to report a first-quarter profit of 21 cents a share and $32.23 billion in automotive revenue, a 2.8% decline compared with a year earlier. While many analysts expect Ford to beat Wall Street's first-quarter estimates, it's unclear how long the carmaker can continue this rally amid tightening vehicle inventories and factory shutdowns. Shares of Ford are up by about 140% during the past year. They've gained 41% in 2021. Ford previously said it expected the chip shortage could lower its earnings by $1 billion to $2.5 billion in 2021. Without releasing any new guidance, the company last month said it "will provide an update on the financial impact of the semiconductor shortage" when it reports its first-quarter earnings. While Wall Street will be watching Ford's earnings, it will be more interested in any change to the company's guidance for 2021 due to the semiconductor chip shortage. Here are more details on those issues, as well as other things investors should know about ahead of Ford reporting its results after the market closes Wednesday. Inventory levels Tightening vehicle inventory and steady demand are leading to lower incentives and record transaction prices on new vehicles. The situation has resulted in higher profits for dealers as well as automakers such as Ford but fewer choices for consumers. Ford's average transaction prices in the first quarter were up 7.2% compared with a year earlier, with incentives down 24.6%, according to industry data. That scenario was the major driver for Deutsche Bank adding a short-term buy call last week ahead of Wednesday's earnings report. "The strength of Q1 could potentially enable management to maintain its FY21 earnings guidance despite intensifying headwinds from chip shortages," Deutsche Bank said in a note. "But even if Ford does have to lower its full-year guidance due to production disruptions in Q2, we would use any weakness in the stock post earnings as an opportunity to add to positions ahead of the company's investor day." Deutsche Bank, in a separate note, described this earnings season for automotive as "somewhat tricky." While it expects results to be "likely robust overall," the outlook for the rest of the year, especially in the second quarter, is "more uncertain" due to the chip shortage. High year-over-year vehicle sales across major markets such as the U.S., Europe and China are likely to assist first-quarter earnings as well. Chip shortage/outlook Expect much of Wall Street's attention to be on any change to the company's earnings expectations this year due to the chip shortage. For 2021, Ford forecast it would earn between $8 billion and $9 billion in adjusted pretax profits and generate between $3.5 billion and $4.5 billion in adjusted free cash flow. That didn't factor in a global shortage in semiconductor chips of between $1 billion and $2.5 billion this year, the company said. Farley last week described the chip shortage as "perhaps the greatest supply shock" he's ever seen: "As scary and difficult and challenging as the early days were in COVID, the current supply shock is just as frustrating, if not more frustrating, for our team," he said Thursday during a virtual conference for Automotive News. Since initially giving guidance about the problem, Ford has shuttered many of its North American plants for varying periods of time, including its highly profitable pickup truck facilities. The plant shutdowns have ranged from overtime cancellations to shutdowns of more than a month. EVs Expect Ford to tout the launch of its Mustang Mach-E , despite confirmed problems with 12-volt batteries in "a small number" of the vehicles. The company sold only 6,600 of the vehicles in the first quarter. Nevertheless, it is viewed as a crucial car for the automaker. Adam Jonas, an analyst for Morgan Stanley, last month said the Mach-E significantly cut into the U.S. market share of Tesla for electric vehicles. Aside from the Mach-E, investors will be looking for any updates on Ford's EV plans, including an upcoming van and F-150 pickup . The company earlier this year announced plans to increase its investment in EVs by $10.5 billion to $22 billion through 2025 . That excludes potential spending on any battery plants. Ford announced plans Tuesday to "eventually" manufacture its own batteries and battery cells. However, the company declined to discuss a timeline to do so. In November, Farley said Ford was "absolutely" interested in following Tesla and General Motors in producing its own batteries for electric vehicles in the U.S. Investors may have to wait until an expected investor day in late spring to learn more about the company's complete EV plans. Farley, who succeeded Jim Hackett as CEO on Oct. 1, said the company would detail "all the specifics" of its EV plans during the investor day. F-Series Any comments regarding Ford's F-Series pickups, including the F-150, are important. The factories that build the vehicles have been affected by the chip shortage. That's despite the company partially assembling some models without components to be completed and shipped when the parts become available. On dealer lots in Detroit, which are usually overflowing with SUVs and pickups, there are noticeably empty spaces and far fewer pickups. Large trucks and SUVs have among the lowest supplies in the U.S., according to Cox Automotive. To end the first quarter, full-size pickup trucks had a below-industry-average inventory of 48 days' supply, down significantly from 61 days in February. The Ford F-150 was down to 56 days' supply, Cox said. — CNBC's Michael Bloom contributed to this report.