Ford's Quarterly Print Leaves Morgan Stanley With 3 Takeaways

Morgan Stanley’s Adam Jonas expects the margin pressure on Ford Motor Company F's core auto business to continue, while investments in new mobility and autonomous cars were likely to burden almost every major auto company.

Jonas maintains an Underweight rating on the company, with a price target of $12.

Q3 Margins

During Q3, Ford Motor’s North American margins were impacted by dealer destocking, a trend that is likely to persist given the weak production guidance for Q4.

In addition, the analyst expects product repositioning to take longer than “what’s left in the cycle.”

3 Thoughts

Jonas pointed out three key takeaways from the company’s Q3 results:

1. “Pretax profit beat our forecasts and consensus by just shy of 10 percent. A combined breakeven in Europe and Middle East was well above our forecast of a $500 million loss. Finco profit also surpassed our expectations. This had an optical offset for misses in NA and S. America,” the analyst mentioned.
2. The company reported the lowest North American margins since Q4:11 at 5.8 percent. This was also the lowest North American Q3 margin since Q3:09. Margins were impact due to inventory destocking, which hit profit by almost $600 million. “While we expect Ford’s NA margins to improve, they look on track to falling below levels produced by FCA in the region for the coming quarters,” Jonas stated.
3. Ford Motor reiterated its full-year guidance of pretax of about $10.2 billion, although the Q4 guidance appears weak at 1.63 million units. “Our FY forecast of $9.9 billion would be $10.0 billion including the $100 million beat from this quarter, which looks in-line,” the analyst added.

At last check, Ford was down 1.52 percent at $11.71.