Ford Motor Co. raised the midpoint of its 2022 adjusted free cash flow forecast by more than 60% despite reporting third-quarter operating profits less than half of those from the 2021 period. The company’s revenues for the quarter climbed about 10% to $39.4 billion and wholesale volumes rose 7%.
Dearborn, Michigan-based Ford reported a third-quarter net loss of $827 million after it wrote down its investment in autonomous driving technology startup Argo AI LLC by $2.7 billion and said it will wind down that venture. Adjusted for that and other one-time items, pre-tax profits came in at $1.8 billion, down from nearly $3 billion in 2021’s Q3, and operating profits were $504 million versus $1.3 billion. Holding back earnings were two factors the company warned on last month: higher supplier costs and parts shortages that left about 40,000 vehicles unfinished at quarter’s end.
The production issues led to Ford executives guiding for full-year profits to come in nearer to the lower end of their previous profit guidance. Still, Ford’s adjusted free cash flow for the quarter for $3.6 billion, essentially the same number as in Q2. The company’s EBIT margin of 5% during the quarter is expected to return to double digits in the fourth quarter as most of those unfinished vehicles — many of them high-margin trucks and SUVs — are completed and shipped. That led CFO John Lawler to lift his full-year forecast for adjusted cash flow to a range of $9.5 billion to $10 billion, up from the previous guidance of $5.5 billion to $6.5 billion.
“This improvement reflects the tough choices we have made to focus on our strengths, hone our footprint and our portfolio, especially outside of North America,” Lawler said on a conference call with analysts.
Ford’s main partner in Argo has been Volkswagen AG – both companies own 41% of the startup after VW stepped in two years ago – and other investors include Lyft and Argo’s founders and employees. Ford first invested in Argo five years ago, committing $1 billion to the venture, but President and CEO Jim Farley said the potential for so-called Level 4 autonomous driving systems is quite a bit further down the road than previously expected and that the company will now focus on other driver-assist technologies.
Farley said that will include bringing several hundred Argo employees into Ford’s tech teams to help develop and refine the company’s BlueCruise hands-free driving program and other software systems. The progress being made on those fronts under former Apple executive Doug Field, Farley said, as well as the ability for that work to differentiate Ford’s next generation of EVs made pulling the plug on Argo a more palatable move.
“It’s that combination – more than ‘Are we behind or are we ahead?’ – that informed us,” Farley said on the conference call. “It’s one of the bigger moments for us as a leadership team.”
Ford shares (Ticker: F) fell about 1% after hours Oct. 26 on the heels of its report. They have lost about 15% of their value over the past six months, dropping the company’s market capitalization to about $52 billion.