Ford Motor Company — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Unless stated otherwise, amounts are U.S. dollars. Prior-year comparisons are affected by COVID-related shutdowns and, in Q2 2020, a substantial gain on Ford’s Argo AI transaction.
Financial performance
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Revenue | $26.752B | $19.371B | $62.980B | $53.691B |
| Net income (loss) attributable to Ford | $561M | $1.117B | $3.823B | $(876)M |
| Diluted GAAP EPS | $0.14 | $0.28 | $0.95 | $(0.22) |
| Company adjusted EBIT (non-GAAP) | $1.082B | $(1.946)B | $5.898B | $(2.578)B |
| Adjusted EBIT margin (non-GAAP) | 4.0% | (10.0)% | 9.4% | (4.8)% |
| Operating cash flow (GAAP) | $756M | $9.115B | $5.248B | $8.642B |
| Adjusted free cash flow (non-GAAP) | $(5.125)B | $(4.758)B | $(5.521)B | $(6.932)B |
Q2 GAAP net margin was 2.1%, versus 5.8% a year earlier; the comparison reflects the non-recurrence of the roughly $3.5B pre-tax Argo AI gain recorded in Q2 2020. Q2 adjusted EPS was $0.13. First-half results also included a $902M unrealized gain related to Ford’s Rivian investment.
- Automotive: Q2 revenue was $24.128B, up 45%; segment EBIT was a loss of $95M, compared with a $2.063B loss a year earlier. EBIT improved on stronger pricing and mix, favorable exchange rates, and lower warranty expense, partly offset by semiconductor-related production constraints, higher volume-related costs, and commodity prices. Market share was 4.9%, down 0.9 percentage points.
- Ford Credit: Q2 EBT was $1.623B, up $1.080B year over year, primarily from stronger lease residual performance and lower COVID-related credit-loss reserves. Net receivables were $118B, down 10%; net liquidity was $33B. Managed leverage was 8.0:1, within its 8:1–9:1 target range.
- Mobility: Q2 EBIT loss was $182M, reflecting investment in autonomous vehicles and mobility businesses.
Liquidity, debt, and balance sheet
- At June 30, Company cash excluding Ford Credit was $25.1B and Company liquidity was $41.0B. Cash net of Company debt was $(0.8)B, versus $6.8B at December 31, 2020. Consolidated cash, cash equivalents, marketable securities, and restricted cash totaled $41.2B.
- Company debt excluding Ford Credit was $25.9B, up from $24.0B at year-end, mainly reflecting $2.3B of convertible notes issued in March. Ford Credit debt was $121.0B, down from $137.7B.
- Consolidated total assets were $248.5B and total equity was $34.8B. Inventories rose to $13.6B from $10.8B at year-end; finished inventory included vehicles awaiting semiconductor components and further quality review.
- First-half capital spending was $2.9B. Ford contributed $393M to funded pension plans in the first half and reported a $5.0B global pension underfunding.
Material changes, outlook, and risks
- Semiconductor shortage: Supply disruptions constrained production, including following a March fire at a key supplier’s plant. Ford expected the shortage could persist into 2022 and projected second-half 2021 production 30% above first-half levels. Working-capital and timing outflows were significant; management expected normalization over several quarters, likely extending into 2022.
- 2021 guidance, issued July 28, 2021: Adjusted EBIT of $9.0B–$10.0B; adjusted free cash flow of $4.0B–$5.0B; capital spending of $6.0B–$6.5B; pension contributions of $0.7B–$0.8B; Ford Credit EBT of about $4.2B; and global redesign EBIT charges of $2.2B–$2.7B. Guidance assumes no material change in the economic environment and is subject to risks. The filing separately describes cumulative redesign cash effects of about $2.9B through June and about $5B through year-end; investors should distinguish this cumulative figure from the stated 2021 guidance range of $3.0B–$3.5B.
- Restructuring: Ford continued exiting or reducing operations in markets including Brazil and phasing out the Mondeo in Spain. Management estimated about $2B of total 2021 redesign charges in the notes and warned additional actions could increase charges and cash effects.
- Legal and other contingencies: A July 22, 2021 Customs and Border Protection penalty notice sought $181M in additional Transit Connect duties and a penalty of up to $1.3B; Ford said it would contest the claims. Separately, reasonably possible losses above accruals for material indirect tax and customs matters were estimated at up to about $1.7B. Possible excess warranty and field-service costs were estimated at up to about $1.1B. Ford described Brazilian tax assessments as remote risk, but stated collateral could exceed $1B if required.
- Other risks: The filing identifies potential effects from COVID-19, supply-chain disruptions, product defects and recalls, market demand and pricing, commodities and foreign exchange, credit losses and lease residual values, pension assumptions, litigation, regulation, cyber incidents, and funding-market access. Ford stated its disclosure controls were effective; a multi-year global ERP implementation had begun.
Important facts for investors to verify
- Whether semiconductor availability and the projected second-half production recovery support full-year EBIT and adjusted free cash flow guidance.
- How much of Q2 and first-half earnings reflects recurring operations versus investment gains, pension items, and other special items; reconcile non-GAAP measures to GAAP.
- Whether working-capital outflows, Ford Credit distributions, and cash usage improve as production and dealer inventories recover.
- Developments in the Transit Connect customs penalty, indirect tax/customs exposures, and warranty and field-service estimates.
- Ford Credit’s credit-loss reserves, used-vehicle values, liquidity, and leverage as economic conditions and vehicle supply change.