Don't mistake the changes underway at Ford Motor Co. as the "indiscriminate" cost cuts of eras past, executives said Wednesday.
In announcing the company's second-quarter financial results, executives declined to comment directly on a recent Bloomberg report that the Blue Oval is preparing to cut as many as 8,000 jobs. But they acknowledged that cost reductions they have long been signaling are underway.
"Traditionally, the auto industry has cut costs — often, indiscriminately — as an effect from lower auto demands through economic softness and shifts for customer preferences. What we're undertaking at Ford is totally different than that," CEO Jim Farley told Wall Street analysts. "We're reshaping virtually every aspect of the way we've done business for a century."
The remarks came as Ford reported $667 million in net income in the second quarter, up roughly 19% from the $561 million it posted a year ago. Revenue was up from $26.8 billion to $40.2 billion.
And adjusted earnings before interest and taxes more than tripled from a year ago, to $3.7 billion. Adjusted EBIT margins rose from 3.9% to 9.3% — sending shares of the company's stock up in after-hours trading and garnering some positive comments from analysts.
Morgan Stanley analyst Adam Jonas called the report "one of the best Ford calls ... in a long, long time," and then asked Farley if Ford has "too many people" — something Farley has previously said.
"We absolutely have too many people in certain places. No doubt about it. And we have skills that don't work anymore. And we have jobs that need to change. And we have lots of new work statements that we've never had before," Farley said. "But I want to emphasize that in the past ... we have, often indiscriminately, just taken the cost out. That's not what's happening at Ford now."
The company's internal combustion engine unit will see cost reductions, he said, by virtue of it being Ford's primary business today.
"Sweeping strategic change generates interest and speculation in the media, which we understand," he added. "However, we're going to comment on Ford+ actions we're taking and how they're going to strengthen our company on our own schedule."
Meanwhile, Ford reaffirmed its full-year guidance of $11.5 billion to $12.5 billion in EBIT and adjusted free cash flow of $5.5 billion to $6.5 billion. The company is targeting a company adjusted EBIT margin of 10%, and an 8% EBIT margin from EVs, by 2026.
The company also is targeting annual EV production of 600,000 units by the end of next year and 2 million by the end of 2026. The automaker last week announced a number of sourcing strategies it has undertaken to shore up EV battery capacity and raw materials supplies to support those goals. Farley said Wednesday the company is on track to produce 14,000 EVs globally this month — "significantly higher than just a few months ago."
In North America, Ford reported earnings of nearly $3.3 billion. The company reported positive earnings in South America, Europe and its international markets group. It posted a loss in China, where production was curtailed industrywide in the second quarter due to COVID-19 lockdowns.
Ford Credit, the automaker's financing arm, had earnings before taxes of $939 million in the second quarter.
Executives said Wednesday that, despite some of the economic headwinds battering consumers, demand and pricing seem to be holding up — similar to what General Motors Co. executives said Tuesday.
GM on Tuesday reported that second-quarter profits were down roughly 40% year-over-year amid nagging supply-chain disruptions, even as it forecast production improvements in the second half of the year and maintained its full-year earnings guidance.
GM reported $1.7 billion in net income for the quarter, down from $2.8 billion in the same period last year. The automaker generated $35.8 billion in revenue in 2Q, up from $34.2 billion in the second quarter of 2021. Stellantis NV will report first-half earnings Thursday.
John Lawler, Ford's chief financial officer, said the company has modeled for various macroeconomic scenarios but feels the company is "in a much better position ... than we've been in in the past." The ongoing cost reductions, he said, "will have benefits if we do head into a potential recession."
And in a signal that supply-chain snarls may be easing, Ford said wholesale shipments had improved 35% in the quarter and the company had completed 35,000 out of 53,000 vehicles that, as of the end of the first quarter, had been built but were awaiting chip-related components. The company still expects vehicle wholesales to increase 10% to 15% this year over 2021.
Meanwhile, Ford's board declared a third-quarter dividend of 15 cents per share, payable on Sept. 1 to shareholders of record as of close of business Aug. 11. The stock closed up at $13.19 per share and was trading up more than 6% following the earnings report.
Investment research firm CFRA Research on Wednesday increased its 12-month price target on Ford's stock by $2 to $18 and reaffirmed its "buy" opinion, noting that the results beat analysts' expectations.
"CEO Jim Farley said the company is moving with purpose and speed into the most promising period for growth in Ford's history," CFRA analyst Garrett Nelson wrote in a note. "Ford remains one of our top picks in the auto industry."
