Ford’s (F) first-quarter results gave us no reason to change our fair value estimate and we believe there is a chance for positive earnings surprises in 2022 and 2023 as production improves from the chip shortage slowly abating. First-quarter results saw the chip shortage negatively affecting production, including critical models like the F-150 pickup truck, and wholesale unit sales fell by 9% year over year. This contrasts with GM’s first-quarter wholesale volume rising 1.2% and this difference says to us that Ford has better results coming this year.
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Despite Ford’s production headwinds, adjusted diluted EPS of $0.38 beat the Refinitiv consensus by a penny while declining by 45.7%. We were concerned Ford might cut its full-year guidance given the war in Ukraine, U.S. inflation, and rising commodity costs, but full-year adjusted EBIT including Ford Credit remains $11.5 billion to $12.5 billion and wholesale unit growth guidance is still 10%-15% over 2021. Adjusted free cash flow excluding pension contributions and excluding Ford Credit earnings (but including dividends from Ford Credit to the auto business) remains $5.5 billion to $6.5 billion. Management did raise its full-year commodity cost headwind expectations considerably, however, to about $4 billion from as much as $2 billion on Feb. 3, but continued strong pricing and favorable working capital is expected to offset these increases enough to keep free cash flow guidance in place. For the quarter, pricing contributed a $1.7 billion tailwind to profits which nearly offset cost increases of $1.9 billion that included $1.2 billion of commodity increases. We expect continued strong pricing given very lean inventories and high demand for lucrative vehicles such as F-Series trucks, the Maverick compact pickup, and various Bronco models. We calculate a free cash burn for the quarter excluding Ford Credit of $754 million including pension contributions of $174 million.