Ford Motor Company Needs To Convince Investors In Its Q3 Earnings: Ford Stock

Flickr

Ford Motor Company (NYSE:F) announces its 3rd quarter 2016 earnings on the 27th of October. Analysts will be looking for $0.22 in earnings per share on top of revenues of just over $33 billion. Ford share price is in a precarious position in the sense that it is now trading at just above $12 levels which are below strong support levels. Furthermore, the stock lost around $1.13 per share or 8% of its value the same day the company announced its second-quarter earnings back in July. I have written in the previous commentary that Ford holds more risk to the downside than potential reward to the upside. I still maintain this view despite the attractive 5%+ dividend yield. At this stage, I fail to see how Ford will be able to achieve it’s 2016 revenue and earnings guidance. The question is whether probable poor numbers in the 3rd and 4th quarters are already priced into the stock. This is what dividend investors will want to ascertain. Here are the metrics that will be watched closely when the company announces on the 27th.

Source : Ford Stock Price chart by amigobulls.com

The Stock Tanked After Second Quarter Earnings Due To Poor Profitability

First, let’s take a look at Q2 where Ford’s adjusted EPS of $0.52 came in well below analysts estimates of $0.60. As already mentioned the stock plummeted in the aftermath despite Ford bringing in $39.5 billion in revenue. Q2 turnover was over three billion higher than what analysts had expected but this didn’t stop the share price from tanking. Higher expected revenues and lower expected earnings can only mean one thing – lower margins. In fact, Ford’s gross margin fell in the second quarter to 12.4% which was a 3.8% decline over the second quarter in 2015. Furthermore, the company’s EBITDA margin fell to 8.4%, which was a 2.6% drop over the same quarter of 12 months prior. If these poor profit margins continue, I just can’t see Ford achieving it’s new pre-tax profit guidance (Updated figure is $10.2 billion due to recent recalls) for 2016.