Ford Motor Company — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Figures are unaudited. Dollar amounts are U.S. dollars; “Q3” means the third quarter. Ford reports Automotive, Mobility, and Ford Credit, with Corporate Other and special items also affecting consolidated results.
Financial performance
| Metric | Q3 2021 | Q3 2020 | First nine months 2021 | First nine months 2020 |
|---|---|---|---|---|
| Revenue | $35.7B | $37.5B | $98.7B | $91.2B |
| Net income attributable to Ford | $1.8B | $2.4B | $5.7B | $1.5B |
| Diluted GAAP EPS | $0.45 | $0.60 | $1.40 | $0.38 |
| Adjusted EBIT (non-GAAP) | $3.0B | $3.6B | $8.9B | $1.1B |
| Adjusted EBIT margin (non-GAAP) | 8.4% | 9.7% | 9.0% | 1.2% |
| Adjusted diluted EPS (non-GAAP) | $0.51 | $0.65 | $1.52 | $0.07 |
Q3 GAAP net income margin was 5.1%, down 1.3 percentage points year over year. Consolidated operating income was $1.3B, versus $2.4B. Q3 adjusted EBIT declined mainly because of weaker Automotive and Corporate Other results. The filing reports Q3 operating cash flow of $7.0B, down from $11.1B. For the first nine months, operating cash flow was $12.3B versus $19.7B; capital spending was $4.5B versus $4.2B. Company adjusted free cash flow, a non-GAAP measure, was $2.2B year to date versus negative $0.4B.
Segments and material comparisons
- Automotive: Q3 revenue was $33.2B, down 4%; EBIT was $2.5B, down $206M, and margin was 7.4% versus 7.7%. Wholesales fell 14%, principally due to semiconductor-related production limits. Higher net pricing, favorable mix, and lower warranty expense partly offset reduced volume and higher commodity costs. North America EBIT fell $779M to $2.4B.
- Ford Credit: Q3 EBT was $1.1B, down $46M. Net receivables were $116.5B, down 11% year over year, reflecting lower wholesale receivables and dealer inventories. The U.S. retail loss-to-receivables ratio was zero basis points; auction values were up 27%.
- Mobility: Q3 EBIT loss was $258M, $28M wider, reflecting strategic investment in autonomous vehicles and mobility businesses.
- Corporate Other: Q3 loss was $285M versus income of $86M, attributed to investment fair-value adjustments, higher governance costs, and lower interest income.
Year-to-date 2021 results include a $902M unrealized gain associated with Ford’s Rivian investment. Year-to-date 2020 included a $3.5B pre-tax gain related to the Argo AI transaction, making the periods less directly comparable.
Cash, debt, and liquidity
At September 30, total cash, cash equivalents, marketable securities, and restricted cash were $46.6B. Ford excluding Ford Credit reported company cash of $31.5B, liquidity of $47.4B, and debt of $25.6B; cash net of debt was $5.9B. Ford Credit reported debt of $119.0B and net liquidity available for use of $33.0B. Its managed leverage was 8.4:1, within its 8:1–9:1 target range. These financing-company balances should be distinguished from Ford’s non-Ford Credit debt and liquidity.
Company debt excluding Ford Credit rose $1.6B from year-end 2020, mainly reflecting the issuance of $2.3B of 0% convertible senior notes due 2026. Consolidated inventories increased to $13.5B from $10.8B; they included completed vehicles awaiting semiconductor-related components and further quality review. Global pension underfunding was reported at $4.2B, improved from $6.7B at year-end 2020.
Outlook, commentary, and risks
- Management’s October 27, 2021 full-year guidance was adjusted EBIT of $10.5B–$11.5B, adjusted free cash flow of $4B–$5B, capital spending of $6.0B–$6.5B, pension contributions of about $0.8B, and Ford Credit EBT of about $4.6B. Global redesign charges were forecast at $1.7B–$2.2B, with cash effects of $2.2B–$2.7B. The adjusted measures are non-GAAP.
- Management raised adjusted EBIT guidance despite weaker-than-expected semiconductor supply recovery, citing business strength and an assumed sequential increase in Q4 wholesales. Free cash flow guidance was unchanged; management cited less favorable working-capital and timing improvements.
- Ford said semiconductor supply constraints could remain fluid and extend into 2023. The shortage reduced production and wholesales; inventory included vehicles awaiting parts. COVID-related restrictions in Southeast Asia were also affecting supply.
- Global restructuring continued, including plans to exit vehicle and engine manufacturing in India and manufacturing operations in Brazil. Ford estimated about $2B of 2021 redesign charges and said further actions could be taken. The redesign’s expected cumulative cash effect was about $7B.
- Key stated risks include supplier and semiconductor disruptions, COVID-19, product defects and warranty costs, commodity and currency volatility, demand and pricing competition, execution of strategic plans, capital-market access, Ford Credit credit losses and lease residual values, pension assumptions, regulation, cybersecurity, and litigation.
- For material contingencies, Ford estimated reasonably possible losses above accruals of up to about $1.7B for indirect tax and customs matters and up to about $900M for material field service and customer satisfaction actions. Ford described potential loss estimates as uncertain. Brazilian tax assessments remain under appeal; Ford considered overall loss risk remote, but potential collateral, if required, could exceed $1B.
- On October 27, Ford announced reinstatement of a regular $0.10 quarterly dividend beginning in Q4 2021. The filing states no shareholder distributions occurred during Q3.
Important facts for investors to verify
- Whether semiconductor availability, production, and Q4 wholesales support the assumptions underlying 2021 guidance.
- How much reported earnings and adjusted results depend on investment gains, restructuring charges, and other special items; review the non-GAAP reconciliations.
- Ford’s ability to convert earnings into cash, including working-capital movements, elevated inventory, capital spending, and restructuring payments.
- Ford Credit’s receivables, credit-loss reserves, used-vehicle auction values, leverage, and funding-market access as economic conditions change.
- Developments in India and Brazil restructuring, tax/customs matters, warranty and field-service exposures, and pension funding.