Insights

Why Ford Stock Jumped Today

What happened

Ford Motor Company (NYSE: F) popped on Thursday after the auto giant reported strong growth in operating income and boosted its cash payout to shareholders by 50%. As of 2:55 p.m. ET, Ford’s shares were up more than 5%. 

So what

Ford’s revenue surged 50% year over year to $40.2 billion in the second quarter. The gains were driven by a 35% jump in wholesale shipments.

During the pandemic, the auto industry has been plagued by supply chain disruptions that have resulted in shortages for key inputs such as semiconductors. These shortages have made it difficult for Ford and other automakers to manufacture enough vehicles to satisfy the demand from consumers. Some of these production challenges have begun to abate in recent months. But with demand still outpacing supply, Ford has been able to charge higher prices for its cars and trucks.

Production increases and favorable pricing, in turn, are helping to boost Ford’s profitability. Its adjusted earnings before interest and taxes (EBIT) soared 236% to $3.7 billion, as its adjusted EBIT margin improved to 9.3%, up from 3.9% in the year-ago quarter.

Now what 

Ford said it’s on track to achieve its full-year adjusted EBIT target of $11.5 billion to $12.5 billion in 2022, which would represent growth of 15% to 25% from 2021. The company also reiterated its adjusted free cash flow guidance of $5.5 billion to $6.5 billion. This robust projected cash flow generation, combined with its $29 billion in cash reserves, prompted Ford to raise its quarterly cash dividend by 50% to $0.15 per share.

Looking further ahead, Ford said it secured enough batteries to build 600,000 electric vehicles (EVs) annually by end of 2023. Expanding its production of battery-powered cars and trucks is a major part of the automaker’s long-term growth strategy.

“We’re moving with purpose and speed into the most promising period for growth in Ford’s history — to innovate and deliver great products and connected services, raise quality and lower costs,” CEO Jim Farley said in a press release. “We’re giving customers great experiences and value, improving our profitability, and making Ford the next-generation transportation leader.”

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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