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Ford gets off to a good start in Q1, but EV and cost-reduction pressures will mount in 2023

Ford Motor Co.’s stock rose more than 1% on Wednesday, boosted by the auto maker’s $1.8 billion profit in the first quarter, but investors worried about the company’s unchanged guidance.

Ford
F,
-0.08%
late Tuesday reported first-quarter earnings and revenue that topped Wall Street expectations and kept its yearly guidance intact.

That unchanged outlook stoked fears of extra pressure on Ford’s second half of the year. Analysts also fretted that the quarter’s standout beat could turn out to be as good as it gets for the auto maker this year.

“Ford’s unchanged 2023 guidance despite a strong beat …. in our view reflects not only large uncertainty around the operating environment for the rest of the year, but also the real risk of earnings deterioration as mix normalizes and pricing declines at Ford Blue, and losses deepen at Model E,” Deutsche Bank’s Emmanuel Rosner said in a note to clients Wednesday, referring to Ford’s traditionally powered-vehicle and electric-vehicle divisions. First quarter was “likely the high watermark.”

Also read: Ford reopens orders and cut prices for its electric Mustang SUV

Ford executives are still banking on $2 billion in cost reductions this year, “which will now need to materialize in 2H, and we worry about its ability to deliver on these,” Rosner said. There’s also concern about the losses for the EV side of the business, “guided to reach positive contribution margin by the end of this year, but deteriorated considerably in 1Q.”

The intact 2023 guidance despite the strong beat implies “some pressure in 2H23 from macro uncertainty and pricing-power easing,” BofA Securities John Murphy said in his note.

Ford’s outlook is for EBIT between $9 billion and $11 billion compares with BofA Securities’s estimate of $10.8 billion and consensus around $9.3 billion, as well as $10.4 billion in 2022, Murphy said.

Ford executives highlighted that commodity tailwinds will be lower than expected and mostly expected in the second quarter of the year, the analyst said. “Although we agree with management’s cautious stance, it appears there is upside to the outlook,” Murphy said.

Related: Tesla investors’ top questions? This analyst says he has the answers

First quarter was “strong” and showed Ford’s resilience against macroeconomic uncertainty and “improved execution,” Citi analyst Itay Michaeli said. The unchanged guidance “largely reflects macro conservatism,” he said.

“Overall, we view Q1 as a step in the right direction,” Michaeli said. A “strong Q1 should increase confidence in Ford’s execution ahead of a (capital markets day) that’s expected to outline Ford’s margin improvement plans in detail.”

Ford has scheduled an analyst day on May 22.

See also: GM’s stock is underappreciated, Morgan Stanley says as it lifts rating to buy

Ford stock, meanwhile, is likely to stay in a range between $11 and $13 “while investors grapple with the pace of U.S. price normalization and debate” whether first quarter was a “cyclical peak,” Chris McNally with ISI Evercore said in his note.

“We believe Ford’s stock will be supported by 5-6% dividend yield at critical $11 level. We look for more detail around Ford’s EV roadmap … to be laid out” at Ford’s analyst day on May 22, McNally said.

Ford shares have lost 18% in the past 12 months, and gained more than 2% so far this year. That compares with a drop of about 1.4% for the S&P 500 index
SPX,
-0.70%
in the past 12 months, and contrasts with an advance of about 7% for the broader index in the year.

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