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The market has responded very well when Ford Motor Company (NYSE: F) appointed new CEO Jim Farley on October 1st, 2020. Since then, Ford's share price has risen 60 to 70%. That was a clear sign of investors' confidence in new leadership and restructuring plans. Then there are Ford's ambitious electrifications plans as it is going full speed towards 2025, just like General Motors Company (NYSE: GM) who will release its quarterly results on February 10th. The proof that Ford knows what it is doing and that its plans are not too farfetched is that the legacy automaker has just reported better than expected fourth-quarter earnings.
Q4 And 2020 earnings
The company reported a loss of $2.79 billion on an unadjusted basis. That is 70 cents a share. This could be considered as the increase of loss since the company reported $1.67 billion during the last three months of 2019, which is a loss of 42 cents a share. However, the adjusted earnings are a bit different, since Ford excluded more than $5 billion as special charges, out of which $2.4 billion were used to end the manufacturing in Brazil, $610 million were used for recalling 3 million older vehicles with potential issues with airbag inflators, and other charges related to pension obligations and restructuring actions. On an annual level in COVID-19 pandemic-ravaged 2020, Ford generated revenues of 127.1 billion, which is a decrease of 18% compared to 2019, with a reported loss of $1.28 billion, as a result of both the pandemic and its restructuring actions. In 2019, the company reported a profit of $84 million.
Farley's predecessor had a restructuring plan worth $11 billion. As GM announced its plans to increase its investment in electric and autonomous vehicles to $27 billion to support the release of 30 EVs by 2025, Wall Street was waiting for Ford to reveal its new and bigger restructuring plans and Ford revealed it now plans to more than double its investment by spending $22 billion on electric cars and $7 billion in self-driving vehicles within the same timeframe. However, this figure includes investments already made under the existing restructuring plan of $10.5 billion until 2025. Ford and its CEO are feeling confident about the transformation of the company, and they promise to present the whole picture over the next couple of months. Its investment in Rivian which recently raised more than $2.65 billion at a valuation of $27.6 billion is certainly fueling Ford's EV prospects.
Ford's CFO John Lawler stated the forecast for adjusted pretax profits is between $8 billion and $9 billion, with adjusted free cash flow estimated between $3.5 billion and $4.5 billion. However, a global shortage of semiconductor chips could lower Ford's earnings since the situation is constantly changing. As a consequence, the company had to reduce the production of its profitable F-150 pickup truck. Supplier's current estimates could result in a loss between 10% and 20% of planned first-quarter production. Hopefully, the semiconductor shortage will not cause any more negative alterations to the production plans.
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