Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Long Ideas

Ford is Making More Money despite Car Sales Collapse

Falling auto sales have not begun to affect revenues at Ford (NYSE: F) yet. Cash and revenues are still growing at the historic automaker, the latest earning report indicates.

Ford’s revenues have rebounded from the drop off in December, ycharts numbers from March 31, 2017 indicate. Ford reported revenues of $153.23 billion at the end of first quarter 2017. That is an increase of $1.43 billion over December 2016, when Ford reported $151.8 billion in revenues. The number is still below that from March 2016 when Ford reported revenues of $153.38 billion.

The revenue numbers are pretty good because US auto sales experienced their weakest month since February 2015 in March 2017. Total vehicle sales in the US for March 2017 were 16.5 million, down from 17.3 million in March 2016, CNBC reported. Analysts attributed the decline in car sales to the tightening of lending standards by banks.

Ford Car Sales Collapsed  

Revenues will probably be down at Ford next quarter, because the company’s car sales dropped by nearly one fourth during first quarter 2017.

Sales of Ford cars fell by 24.2% during the quarter, Guru Focus reported. Sales of some individual models took an even bigger hit. Sales volume for the Focus fell by 22.5% and the number of Fusions sold was down by 36.8%.

There was some good news in Ford’s numbers, sales of the F-series’ pickups; America’s most popular vehicle, increased by 10.1% during the quarter. That made a total drop in sales at Ford of just 7.2%; which means this company has a bigger moat than some investors realize.

There are still some serious problems at Ford including SUV sales that fell by 3.4%. Ford’s luxury brand; Lincoln continued to do well its sales only dropped by 1.4%.

Why are Car Sales Tanking while Truck Sales Boom?

The sales numbers show that Ford has strong brand loyalty among pickup truck buyers but not among car buyers. That might be because trucks and cars appeal to demographics.

Car buyers tend to be women and urban and suburban residents, truck buyers are more likely to be rural and men. Another difference is that truck buyers are more conservative so they have stronger senses of brand loyalty and patriotism.

Truck buyers might have more disposable income and are more likely to be self-employed which means they are less likely to be affected by tightening of lending standards. Since trucks are more likely to be used for work they can be written off on taxes as a business expense.

People and businesses are often quicker to trade in work vehicles because they have to reliable. A truck sitting in the garage waiting for repair will not generate any revenue for a business.

Is Ford Making Money?

Ford is still a value investment because it is still making a lot of money despite the collapse in auto sales. The quarterly earnings report definitely shows us why Ford is still a great company with numbers like:

  • A net income of $3.731 billion for second quarter 2017. Impressive but still less than half the $8.672 billion in net income reported in March 2016.


  • Cash and short-term investments of $39.99 billion. A slight increase over the $39.47 billion reported in March 2016.

  • $4.299 billion cash from financing. This number is worrisome because it was down $9.721 billion from the $14.02 billion reported a year earlier.


  • $19.98 billion in cash from operations. This number is a $2.07 billion increase from $17.91 billion in March 2016.


  • A profit margin of 4.05%.


  • A free cash flow of $2.63 billion which is nearly the same as the $2.638 billion reported in March 2016.

These numbers indicate that Ford is capable of maintaining its float and cash flow despite the drop in auto sales. Its ability to maintain cash from operations in spite of declining auto sales is particularly impressive.

There’s also a lot of basic value here in the form of $244.09 billion in assets for first quarter 2017. This gave the company an enterprise value of $151.66 billion on April 28, 2017.

Ford is a Technology Company

The real value at Ford is all that cash because it gives the company the ability to make massive investments in technology. That’s vital because at the end of the day Ford is a technology company.

The dominant auto company of the age will be the one with the best tech. Ford understands this well, and is willing to invest in its future. For example the automaker just hired 400 BlackBerry employees to develop new wireless solutions for its vehicles, Bloomberg Technology reported. That move enabled Ford to double the number of connected-vehicle engineers in its R&D department in one fell swoop.

Ford has had a partnership with the ailing Canadian phone maker BlackBerry since October 2016. BlackBerry is trying to transform itself from a phone manufacturer to a provider of wireless software solutions.

The BlackBerry deal is only the latest example of investment in technology. Ford is planning to invest $1 billion in artificial intelligence and $4.5 billion in in electric-car technology over the next few years. Those efforts are part of Ford CEO Mark Fields’ master plan to put the world’s first fully autonomous car on the road by 2021.

Ford is the Best Value in Tech Stocks

All of this makes Ford the best value in technology stocks around these days. Ford shares were trading at $10.98 a piece on May 4, 2017, while Tesla Motors (NASDAQ: TSLA); which burns through cash like crazy, was trading at $295.94 a share.

Instead of a net income Tesla reported a loss of $674.91 million on December 31, 2016. To add insult to injury, Elon Musk’s auto venture reported losing $123.83 million in cash from operations. This makes Tesla the most overpriced stock in the universe.

In contrast Ford is one of the most underpriced stocks around. It had an enterprise value of $151.68 billion and a market cap on $45.67 billion on April 28, 2017. It even paid a dividend of 15¢ on April 18, 2017, that was down from 20¢ on January 18. Yet even the reduced dividend is a shrewd move because it gives Ford more money to invest in tech.

If you are looking for a low-cost long term value play in technology Ford is a great stock. It is cheap, but the company generates a lot of cash and is making some very shrewd investments in technology that will greatly increase its value.