Ford shareholders hit the accelerator too hard - Reuters

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The body and chassis of a Ford pre-production all-electric F-150 Lightning truck prototype are seen at the Rouge Electric Vehicle Center in Dearborn, Michigan, U.S. September 16, 2021. REUTERS/Rebecca Cook/File Photo

MELBOURNE, Oct 28 (Reuters Breakingviews) - Ford Motor (F.N)handily beat its larger Motown rival in the feel-good stakes last quarter. General Motors (GM.N), despite surpassing analyst estimates for the most recent reporting period, suggested it might log disappointing earnings read more in the three months to come, and shareholders knocked more than 5% off the stock. Ford shares, on the other hand, rose nearly 10% in after-hours trade after it reinstated its dividend, boosted its earnings outlook and overtook GM in quarterly revenue. But investors are hitting the accelerator too hard.

Sure, having a bigger top line than your larger competitor is worth a shout. It has been a while since Ford boss Jim Farley or his predecessors could boast better bottom-line momentum than GM chief Mary Barra, too. Resuming quarterly payments to shareholders, which were suspended when the Covid-19 pandemic first hit, is a sign of health, and GM has yet to do so, even though its $2.4 billion of net income for the three months to the end of September was a third higher than Ford’s.

But Barra still enjoys better profit margins. Earnings before interest and taxes for the third quarter came in just shy of 11% of revenue, compared with 8.4% at Ford. Wednesday’s share-price moves have widened the valuation gap between the two. Ford trades at 10.5 times this year’s estimated earnings, per Refinitiv data. GM’s multiple has fallen to 8.4 times.

While Ford deserves credit for its performance improvements, such a large premium is unjustified unless GM starts losing the margins race too. That looks unlikely. Both marques, along with virtually all the industry except Tesla read more , are still coping with semiconductor supply-chain constraints. GM also seems ahead on both electric- and autonomous-vehicle strategies. Ford traders need to cool their jets.

Follow @AntonyMCurrie on Twitter

CONTEXT NEWS

- Ford Motor on Oct. 27 reinstated its dividend and increased its full-year earnings forecast as it reported third-quarter profit of $1.8 billion. While 25% lower than the same period last year, net income was double the mean estimate of sell-side analysts. Revenue was almost $36 billion, slightly higher than estimated.

- On the same day General Motors reported third-quarter net income of $2.4 billion, also beating analysts’ estimates. It said full-year operating earnings should be close to the top of its $11.5 billion to $13.5 billion range, implying a weaker-than-expected fourth quarter. Shares closed down more than 5%.

Editing by Pete Sweeney and Katrina Hamlin

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

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October 28, 2021 at 10:32AM
https://www.reuters.com/breakingviews/ford-shareholders-hit-accelerator-too-hard-2021-10-28/

Ford shareholders hit the accelerator too hard - Reuters

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