Ford: The Sales Say It All

Ford’s (F) sales have indicated a problem for a while now. The market has been too interested in the truck sales to realize it. The recently announced job layoffs are not the first symptom of a problem here. Ford has been suffering from a falling overall lineup (outside of its money bag truck division) for some time. With a bullish auto cycle that has run far past the norm, carmakers experienced a pressure valve over the past year from a rising interest in SUVs and pickup trucks. These lucrative vehicles allowed big names like Ford and General Motors (GM) to keep earnings strong. Unfortunately, I think the peak has become clear even within the tried and true pickups. The company reported a big decline in September US sales relative to last year. This is the more significant sign to stay away from Ford’s stock. Couple the sales issues with the impacts of tariffs and we might have a real problem here.

A clear peak across all segments

Regular car sales have been in overall decline since last year. This year alone cars have declined 16.6% for Ford. This isn’t just Ford either. Many players have seen sedan sales fall after years of growth. It’s been such a problem for Ford that they’re basically giving up on car sales in the US altogether. Long term, I think they’ll regret that move, as consumer trends shift constantly. In the aftermath of that shift, Ford has maintained good earnings numbers through the sales of crossovers, SUVs, and trucks. This year, we’ve seen the growth story shrink to basically just pickup trucks. Crossover SUVs like the Ford Escape fell 20.2% in September. The car is down 10.2% for the year. The Ford Edge is down 5.5% this year, while the Ford Explorer is relatively stagnant with a 1.6% decline year to date. It now rests almost entirely with Ford’s pickup line to maintain sales growth. September finally marked a turn for that as well.

Ford trucks fell 9.9% to 93,408 units. The F-Series makes up the bulk of that segment and reported sales declines of 8.8% in September. Ford shrugged off the change by noting September was the seventh month with F-Series sales over 70,000 trucks. I think that’s a cop out. Ford admittedly had a lot to live up to in September. The company sold a ton of trucks last year during the same month, thanks in large part to a hurricane that increased inventories from last August. Unfortunately, sales growth is sales growth regardless of circumstance.

Ford’s total sales fell 11.2% in September, grew 4.1% in August, and fell 3.1% in July. Overall, that means the third quarter results will incorporate revenues from a 10.2% decline in total auto sales. It will once again fall to the F-Series to save the day. I could extend an olive branch here and point out that we did, in fact, have another hurricane on the east coast this quarter, but the bigger picture seems in decline.

Can the third quarter surprise?

Ford seems to be preparing to blame profits on tariffs. I certainly think it’s fair to say that steel and aluminum costs will hamper carmakers, but the fact that the company is talking about it, along with preemptively announcing layoffs ahead of earnings, implies we’re going to get bad news. Even if Q3 surprises, I think this is the start of a longer trend of deceleration. Through September, total sales are down 2.4%. Ford is down 2.1% this year. Lincoln is down 9%. The economy is strong, but we all know that some slowing will have to occur within the next few years. Cars are almost always one of the most affected industries in the event of slower economic conditions. Because of that, this doesn’t seem like a wise long-term play, even with the exceptionally cheap valuation. Revenues dipped 2.3% to $38.92 billion in the second quarter, with a roughly 25% fallout in gross income. On those revenues, Ford’s net income declined 47.5% to $1.07 billion. That put a comparable dent in diluted earnings per share, bringing earnings to $0.27.

Unless there’s a real surprise here that I’m missing, I think Ford continues that decline in the third quarter. Where are the catalysts for growth? Trucks went down. Trucks are where the company makes money. We saw a big gain in Ford Expedition sales of 27%, but total sales amounted to less than 4,000 cars. I just don’t see it. The car cycle has definitely peaked, and there’s a lot of work to be done here.

I’ll leave you with a few pluses in order to be fair. The company had $16 billion in cash in Q2. Furthermore, there’s a 6.5% dividend right now. I see no reason right now for that dividend to get cut, as it is keeping investors interested. Outside of that, I think we’re about to see more bad than good for a while.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.