Ford Earnings Preview: After Last Week's Wall Street Presentation, Not Much New Expected

Ford Motor Company F reports fourth-quarter earnings and closes out fiscal 2017 after market close on Wednesday, Jan. 24. Between the company’s release of its December sales figures and its recent presentation at Deutsche Bank’s Global Auto Industry Conference, where management detailed its future strategy and announced preliminary results for fiscal 2017, there probably isn’t going to be anything too surprising from this quarter’s results.

When it reports Q4 results, F is expected to report adjusted earnings per share (EPS) of $0.43, up from $0.30 in the prior-year period, on revenue of $37.15 billion, according to third-party consensus analyst estimates. Both earnings and revenue have come in higher in three out of the last four quarters. 

For fiscal 2017, F announced preliminary results of $1.78 in adjusted EPS. In fiscal 2018, management issued guidance for adjusted EPS in the range of $1.45 to $1.70 and revenue to be “flat to modestly higher”. Management has said it expects commodity prices and currencies to be headwinds in the upcoming year, but they expect U.S. tax reform to have a beneficial impact on the company going forward. In 2018, the company estimates it will have an adjusted effective tax rate of 15%, and a rate of 18% in 2019 and beyond — down from roughly 30%.  

At Deutsche Bank’s Global Auto Industry Conference on Jan. 16, F outlined plans that were focused on cost-cutting measures, more efficient use of capital and investing for future growth. Part of their investment for future growth has been focused on electric vehicles and the company said it plans to invest more than $11 billion between 2015 and 2022 on electrification of product lines and developing new hybrids. While F said that it is hoping that will position the company for future growth, analysts have cautioned that it will pressure profitability in 2018 and beyond.

F indicated one of its goals is to strengthen its competitive position through partnerships. In November, it announced a new joint venture with Zotye, a Chinese firm, that will develop and manufacture all-electric vehicles under a new brand name in China. F has also announced several partnerships in recent quarters including ones with Lyft and Domino’s Pizza, Inc. DPZ, both of which centered around self-driving cars.

FORD COMPANY DIVISIONS. Historically, Ford’s (F) vehicle lease and loans segment has been a large contributor to sales and earnings. TD Ameritrade clients can analyze potential revenue drivers of a stock on the Fundamentals tab on the thinkorswim® platform. Trefis information and estimates used in Company Profile are provided by Insight Guru, a separate and unaffiliated firm. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Ford Options Trading Activity

After hitting a 52-week high of $13.48 on Jan. 16, shares gapped lower the next day and closed at $12.18 after the company released preliminary fiscal 2017 results and issued guidance for fiscal 2018. Since then, shares have slid to the $12 level, which has been an area of support in recent months.

Around the upcoming earnings release, options traders have priced in about a 2.5% potential stock move in either direction, according to the Market Maker Move indicator on the thinkorswim® platform. As of this morning, implied volatility is on the low end at the 35^th percentile.

In short-term trading at the January 26 weekly expiration, both calls and puts have been active at the 12 strike price, right at the money. Volume was heavier on the call side during Monday’s trading session, with 12,245 contracts trading hands at the 12-strike call, compared to 5,786 contracts on the put side.

At the February 16 monthly expiration, recent trading has been heavier at the 12 and 12.5-strike calls, while most of the activity on the put side has been at the 12 strike.  

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined price over a set period of time.

FORD SINCE Q3. Ford (F) had been trading in a tight range until the start of 2018. The stock peaked at a 52-week high of $13.48 on Jan. 16, but has since dropped back to the $12 level after the company released preliminary results for fiscal 2017. Implied volatility, shown in the bottom chart, spiked leading up to F’s presentation at the Deutsche Bank conference, but it has been dropping heading into the earnings release. Chart source: thinkorswim^® by TD Ameritrade. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Looking Ahead

Next week brings results from quite a few different companies across sectors including McDonald’s Corporation MCD, Pfizer Inc. PFE, Boeing Co BA, AT&T Inc. T, Exxon Mobil Corporation XOM and Chevron Corporation CVX. It’s also a week full of tech results with Apple Inc. AAPL, Alibaba Group Holding Ltd. BABA, Microsoft Corporation MSFT, Alphabet Inc GOOG GOOGL and Amazon.com, Inc. AMZN, among others, scheduled to report.

On the economic data front, the government’s first estimate for Q4 gross domestic product (GDP) comes out Friday morning. Next week, the Fed kicks off its first meeting of 2018 on Tuesday, Jan. 30.  Other than it being Fed Chair Janet Yellen’s last meeting at the helm, it’s expected to be a non-event after December’s rate hike. And if you have time, check out today’s Market Update to see what else is going on.

Information from TDA is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade.