Analysis: F

Ford (F) reported a tremendous beat with its first-quarter results Wednesday night after the closing bell. Revenue of $36.2 billion (+5.5% YoY) edged estimates of $36.1 billion, and adjusted earnings per share of $0.89 (+$0.22 YoY) greatly exceeded estimates of $0.21.

The consensus full-year adjusted EPS estimate for Ford was $1.21 heading into the print, meaning Ford almost delivered its full year worth of earnings in the first quarter alone.

"Our team is relentlessly executing our plan to turn around our automotive business, so that we can create and deliver the high-value, always-on experience that our Ford and Lincoln customers deserve," Ford President and CEO Jim Farley said in the earnings release. "There's no question we're becoming a stronger, more resilient company."

In addition to the headline results, adjusted earnings before interest and taxes (EBIT) were a record at $4.8 billion and included a $902 million noncash gain related to the company's investment in Rivian. Ford blew away estimates of $1.66 billion, thanks to higher net pricing and a favorable mix of higher margin, higher demand vehicles. And that came at an adjusted EBIT margin of 13.3%. 

Despite the much-better-than-expected quarter, shares are trading lower in after hours. This disappointing result is largely because of tepid full-year guidance. Hitting the company's full-year outlook is the semiconductor shortage, which was made worse in March by a fire at a Renesas semiconductor facility in Japan. Because of this additional effect, Ford now expects to lose about 50% of its planned second-quarter production. While the flow of semis from the Japanese supplier is expected to resume by the end of the second quarter, making the second quarter the trough of the issue, Ford acknowledged that the broader semi shortage may not fully resolve until 2022. As a result, Ford now assumes it will lose 10% of its planned second half 2021 product.

To put some numbers around the shortage, Ford now expects to lose about 1.1 million units of production this year. That represents cars the company had planned to build this year, but won't because of the shortage. As a result, Ford expects the full-year 2021 adjusted EBIT to be between $5.5 billion and $6.5 billion, which at a midpoint of $6 billion is well below estimates of $7.7 billion. This updated outlook includes an adverse effect of about $2.5 billion and is the main driver behind the reduced guidance from management's initial outlook of $8 billion to $9 billion. Also included in guidance are headwinds related to higher commodities, which will hit the business as Ford moves through the year, but pricing actions represent an offset. After delivering over $4 billion of EBIT in the first quarter, this guidance means profits for the rest of the year will be quite low. Also, adjusted free cash flow for the full year is projected to be $500 million to $1.5 billion, which is down from previous guidance of $3.5 billion to $4.5 billion.

By region, North American revenue was $23.0 billion (+5% YoY), generating $2.9 billion of EBIT -- well above estimates of $874 million -- for an EBIT margin of 12.8%. This represents the highest margin in North America in 5 years. Sales were strong thanks to the huge demand for the Mustang Mache-E, the all-new 2021 F-150, and the Bronco sport. (Demand for the Mustang Mache-E is particularly high, noted Farley during an interview on "Mad Money" Wednesday.) Sales also benefited from tight vehicle inventories, which allowed Ford to capture stronger pricing with a favorable mix. The average U.S. retail transaction increased by $2,934 per unit, and relative to 2019. Ford also said the increase in its average transaction prices in the U.S. was $1,900 more per unit than the industry average.

Touching on the Mustang Mach-E for a moment, Ford said that 70% of customers who purchased the battery-electric SUV were new to Ford. This is an incredible statistic. The company also said warranty costs improved by more than $400 million from a year ago, and we are glad to see management get a handle on this cost reduction opportunity. Management plans to accelerate this progress, and there is a lot of wood to chop here.

Europe's revenue was $7.1 billion (+13% YoY), generating $489 million of EBIT -- well above estimates of an $82 million loss -- for an EBIT margin of 4.8%, which was helped by a $0.2 billion decline of structural costs. Ford said commercial vehicle share reached a record high in the quarter.

Revenue from China was $800 million, which in turn generated a $15 million loss before interest and taxes, and for an EBIT margin of -1.8%. That loss is far better than estimates of an $88 million loss. Ford almost achieved break-even in the region, as the roughly $.2 billion YoY EBIT improvement represented the fourth consecutive quarter of improvement. Driving the quarter was the best first-quarter retail sales result for Lincoln-brand vehicles, 90% of which are locally built. Ford also said higher-end Ford SUVs and commercial vehicles were strong.

South America's revenue was $0.4 billion, generating a $73 million loss before interest and taxes, which was better than the negative $111 million estimates -- for an EBIT margin of -16.7%. This was the sixth consecutive quarter of YoY EBIT improvement. The company said its previously announced restructuring efforts are progressing as planned.

International Markets Group revenue was $2.3 billion, generating earnings of $201 million before taxes and interest - much better than estimates of a $22 million loss and was a record to date -- for an EBIT margin of 8.9%. Ford was profitable in all markets except for India and benefited from 18% lower structural costs.

Taking a look at Ford's overseas markets as a whole, the company delivered roughly $500 million of EBIT in the quarter. This is a massive improvement from the $5.8 billion EBIT loss the company experienced over the past four years. This pace of roughly $1 billion of improvement year over year is a remarkable turnaround from the money-losing operation the old Ford used to run and is a major reason why this new Ford is positioned for success in the future and is able to aggressively invest in EV.

And, Ford Credit EBIT came in at $1 billion, well above estimates of $768 million.

In addition, Ford announced that its highly anticipated Capital Markets event is scheduled for May 26. The company plans to deliver a deep diver into its electric vehicle strategy, provide more detail into its commercial vehicle business, and discuss how connected vehicles are transforming the customer experience. We are bullish into this event, because it could serve as the catalyst that allows the stock to rerate and narrow the multiple gap between Ford and its Auto OEM/EV peers. Ford is not a sell ahead of this event.

Overall, this was an incredible quarter by Ford, as the combination of its cost actions/running lean strategy and their capitalizing on robust demand led to a record profit number. However, the strength of this extraordinary quarter is expected to be overshadowed by the chip shortage-driven guidance cut that will likely dominate the conversation Thursday. We think that weakness represents opportunity. We are upgrading our rating to a ONE on Wednesday and believe pullbacks are to be bought.

Ford's work is far from over, but we must not let the chip shortage allow us to lose sight of how this company and its new management team have completely turned around the business. Through aggressive cost actions and a newfound focus on the brands that sell best, management has put Ford on a path toward sustainable growth that is still being underappreciated at Ford's reasonable 10-times earnings valuation. And all of this work has not come at any sacrifice to Ford's electric vehicle and autonomous vehicle ambitions, which we look forward to learning more about from management at the May Capital Markets event. We would be buyers on this pullback. 

Action AlertsPLUS, which Cramer co-manages as a charitable trust, is long F.