Ford’s earnings made a surprising profit. Its arrow jumps.

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An employee passes by the Ford Carl Court logo / Getty Images

Auto giant Ford Motor Co. posted a surprise second-quarter profit, ignoring the impact of a global shortage in semiconductors. On top of that, the company increased its earnings guidance for the full year.

Ford (Ticker:F) stock is reacting positively, rising 3.3% in the trading session after the close.

Ford reported 13 cents of earnings per share from $26.8 billion in quarter sales. Wall Street was looking for a 3 cent loss from $23 billion in sales. The vehicle mix helped the automaker increase sales and profits; Ford prioritized producing high-value vehicles in the quarter due to a limited supply of chips.

Wall Street expected a loss due to the global shortage of semiconductors. Ford’s management has estimated that their company will make about 50% of planned production in the second quarter due to a shortage of chips. Ford lost about 17% of first-quarter production.

Ford management said at the company’s earnings conference, which began at 5 p.m. ET, that the chip situation is improving but “remains volatile.” Things in the second half of 2021 likely won’t be as bad as the second quarter, but the problem isn’t behind Ford or the industry. Fully auto.

This shortage had a material impact. North American operating profit was just $200 million in the second quarter, down from $2.9 billion in the first quarter of 2021.

Back in April, Ford said the chip shortage should cost the company about $1.1 billion in full-year operating profit, and that it expects to produce about $6.5 billion in full-year operating profit, including the impact of the shortfall.

Despite the chip headwind, things are getting better. In the first two quarters of the year, Ford generated an estimated operating profit of $6 billion. In the second half of 2021, Ford expects to earn about $3-4 billion.

This means that for the full year, Ford now expects roughly $9-10 billion in full-year operating profit, which is significantly better than the $2.8 billion earned in 2020. The new guidance is also significantly better than the $6.5 billion targeted management in April.

Free cash flow was negative $5.1 billion in the second quarter. Cash flow should improve as Ford’s production increases and the chip shortage fades. In fact, Ford sees free cash flow for a full year of about $4.5 billion. This is an improvement over previous guidance. In April, Ford management forecast about $1 billion in free cash flow for the full year.

Cash withdrawal may be negative in the quarter. But there were other pluses besides the windfall. For example, Ford Credit posted a record profit of $1.6 billion. The auto industry, including auto lending, is doing well in the 2020 affected by the pandemic.

The after-hours hike adds to year-to-date gains. So far in 2021, Ford’s stock is up about 56%, much better than similar gains of 17% and 14% for the S&P 500 and Dow Jones industrial average, respectively.

Barron’s recently wrote positively about Ford, believing that new management could improve operations. Since this article appeared, Ford’s stock has risen about 52%. The S&P 500 gained about 21% over the same period.

Write to Al Root at [email protected]

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