Investors are finally starting to believe it Ford Motor Company‘s (NYSE: F) recovery plan. On Wednesday afternoon, the auto giant announced strong third quarter 2021 results, raised its full-year profit forecast and reinstated its dividend. Investors cheered, pushing Ford shares up 10% in the last two days of the week.

The latest rally took Ford shares to levels not seen since 2014. Nonetheless, shares could continue to rise as Ford capitalizes on its recent restructuring and improved semiconductor supply over the past two years. coming years.

Ford Motor Company stock performance, as reported by YCharts.

A huge beating of earnings

The global chip shortage crushed Ford’s production in the second quarter. Chip availability began to improve in the third quarter, leading to a 32% sequential increase in wholesale vehicle sales and a 33% sequential increase in revenue.

Wholesale volume of Ford’s consolidated operations fell a further 14% year-on-year to just over one billion units. However, automotive revenue fell only 4%, with the iconic automaker largely able to offset the drop in volume with higher prices.

The strong pricing environment partially offset the negative impact of lower volumes and higher costs compared to the third quarter of 2020. As a result, Ford reported adjusted operating income of $ 3 billion. The company generated virtually all of its profits from its North American operations and fundraising activities. Ford’s foreign divisions collectively reported a small operating profit of $ 36 million. Still, that marks a big improvement over the substantial losses Ford has often reported outside of North America in recent years.

Thanks to strong operating income, Ford posted adjusted earnings per share (EPS) of $ 0.51 last quarter: down from $ 0.65 a year earlier, but well ahead of consensus analysts $ 0.27. Ford also generated an astonishing adjusted free cash flow of $ 7.7 billion in the quarter, reversing an outflow of $ 5.5 billion in the first half of 2021.

Ford raises its forecasts

As production, profitability and cash flow rebound from severe disruptions earlier this year, Ford on Wednesday raised its guidance for the full year on Wednesday. The automaker now expects to report full-year adjusted operating income between $ 10.5 billion and $ 11.5 billion, from an earlier range of $ 9 billion to $ 10 billion of dollars.

A pair of Ford Broncos on a rugged mountain.

Image source: Ford Motor Company.

Management also reaffirmed the company’s previous goal of generating between $ 4 billion and $ 5 billion in adjusted free cash flow this year. Based on this outlook and the company’s strong balance sheet, Ford will restart its dividend, with a quarterly payout of $ 0.10 per share.

Ford has not provided firm guidance for 2022, but management currently expects wholesale sales to increase 10% year-over-year as semiconductor supply grows. ‘gradually improves. This could lead to further increases in operating income, EPS and free cash flow. Moreover, even a 10% increase in production would not be enough to meet demand, paving the way for further growth in 2023.

Finally go in the right direction

Considering the negative impact of the chip shortage, Ford’s third quarter results were quite strong. Admittedly, the company has not finished reviving its activities abroad, but it has made substantial progress, as evidenced by its ability to reduce its losses despite production constraints.

As the chip shortage eases and production resumes, Ford is expected to start generating significant profits outside of North America. Meanwhile, pent-up demand and key new products like the Bronco and Bronco Sport will drive revenue and profit growth in North America over the next two years.

This momentum puts Ford in an excellent position to exceed its long-term operating margin target of 8% by 2023, resulting in annual EPS of over $ 2. The company also has valuable investments in electric truck maker Rivian and autonomous driving start-up Argo AI that it could monetize in the years to come. While Ford’s stock has more than doubled over the past 12 months, these factors suggest it still has a lot of potential.

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