Wall Street Lowers the Bar: Why Ford's Q3 Earnings on Oct. 28 Could Trigger a Surprise October Breakout

Ford Motor Company is set to release its third-quarter earnings report on October 28, and analysts on Wall Street have recently adjusted their expectations downward. The company's stock has declined by 10.36% over the past month, creating a situation where even a slight positive surprise in the earnings report could significantly improve investor sentiment, or it might confirm ongoing concerns about the company’s recovery trajectory.

In the previous quarter, Ford reported an adjusted earnings per share (EPS) of $0.42, surpassing the consensus estimate of $0.3463. The company generated revenue of $48.30 billion, exceeding analysts' predictions of $45.80 billion. Additionally, Ford's management raised its full-year adjusted earnings before interest and taxes (EBIT) guidance from a range of $8.5 billion to $10.5 billion to a new range of $10.0 billion to $11.0 billion. However, a $3.6 billion charge related to the sale of its BlueOval SK joint venture resulted in a generally accepted accounting principles (GAAP) net loss of $1.33 billion.

Despite these strong performance indicators, the market reacted negatively. Following the release of those results, Ford's shares dropped by 7.53% in the week that followed, closing at $11.59 on Friday, reflecting an 8.56% decline year-to-date. Analysts have since lowered the consensus EPS estimate for the upcoming quarter; it is now down from 0.4160 just 60 days prior, although there have been four upward revisions in the last week.

The year-over-year comparison for Ford's upcoming earnings is expected to be challenging, particularly in light of the performance of Ford Pro, the company’s commercial vehicle division. In the second quarter, Ford Pro's EBIT fell by 26% to $1.7 billion, negatively impacted by disruptions in aluminum supply from Novelis, which affected the production of Super Duty trucks. Management anticipates that Ford Pro will achieve EBIT of between $3.6 billion and $4.1 billion in the second half of the year. Alicia Boler Davis, President of Ford Pro, stated, “We expect to end the year with our full recovery to 2025 revenue run rate and Super Duty availability being aligned with demand.”

Material costs from Novelis are also a significant concern for Ford, which has already absorbed around $800 million in costs this year and expects to incur approximately $1.5 billion by year-end. CFO Sherry House remains optimistic, projecting a “net $1 billion EBIT improvement, heavily weighted to the second half.”

In the Ford Blue division, maintaining pricing discipline is crucial. The inventory for F-Series trucks currently stands at a 45-day supply, with off-road models representing 25% of U.S. sales in the second quarter. However, there are risks involved; supplier issues in late September led to temporary halts in F-150 assembly at several domestic plants, which could adversely impact delivery schedules.

Meanwhile, the Model e division reported a loss of $919 million last quarter, with a full-year target loss of approximately $4 billion. Ford Credit also warrants close scrutiny, as vehicle depreciation poses a threat to the profitability of leasing operations.

While Ford has managed to exceed EPS expectations in five of the last six quarters, the impact of these positive surprises has been diminishing. Historically, the stock has averaged a decline of 1.27% in the week following an earnings beat. Given that Ford currently offers a 6.59% dividend yield and has lowered expectations, breaking this trend may require more than just a positive headline. For a sustained increase in stock price post-earnings, Ford will need to demonstrate a clear recovery in its Pro division and either reaffirm or raise its guidance.