Ford Earnings Beat Wall Street Estimates. The Stock Is Down.

Wall Street was looking for operating profit of $2.5 billion and earnings per share of 42 cents from sales of $39.2 billion. A year ago, Ford reported operating profit of $2.3 billion and EPS of 38 cents from sales of $34.5 billion in the first quarter of 2022.

This is the first quarter Ford reported using its new business segments. Operating profit in the traditional car business came in at $2.6 billion. Ford’s commercial business generated $1.4 billion in operating profit. The electric vehicle business lost $722 million. The EV business is expected to lose about $3 billion for all of 2023.

The topic of EV pricing and

Tesla

(TSLA) price cuts came up on the company’s earnings conference call. CEO Jim Farley didn’t appear to agree with the

Tesla

CEO Elon Musk comment about selling cars for low or no margin and making profits up by selling services to existing customers.

Selling services is a good idea, and Farley said that’s precisely what Ford is doing in the company’s commercial business. But he wants selling cars to be a profitable business too. “I am not giving any relief to my vehicle teams for software sales or any kind of margin advantage,” said Farley. The vehicles “have to get to 8% [operating profit margins] on their own.”

Overall, the first quarter was a strong start to the year for Ford. Shares, however, are down 2% in after hours trading. Shares earlier had dropped more than 2% in regular trading on a bad day for the market. The Nasdaq Composite fell 1.1%. Investors just don’t like car stocks theses days.

GM also beat Wall Street estimates and raised full-year financial guidance when it reported results recently. GM currently expects 2023 operating profit to come in between $11 billion and $13 billion. In January, management expected to generate operating profit of $10.5 billion to $12.5 billion. Shares fell 4%.

Ford left its full-year guidance unchanged. The company still expects operating profit to come in between $9 billion and $11 billion. “There’s a lot of the year in front of us,” said CFO John Lawler when asked why guidance wasn’t raised after a strong first quarter.

Analysts currently project 2023 operating profit of $9.6 billion, at the lower end of Ford’s range. Ford reported 2022 operating profit of $10.4 billion.

“The quarter was strong, beat sales and earnings, but didn’t raise the guide,” says Edward Jones analyst Jeff Windau. Nothing really surprised him about the quarter. Investors just don’t feel very good about car stocks in this economy. After years of constrained production supply is improving, but now there are questions about demand. “That keeps a lid on things for now.” Windau rates shares Hold. He doesn’t have a price target for the stock.

The problem, for shares, isn’t Ford, or GM. It’s the economy. Vehicle affordability has become a headwind for the entire industry. At the end of the first quarter, a record 17% of Americans financing their vehicles were paying more than $1,000 a month. Two years ago only about 6% of people financing vehicles had $1,000-a-month car payments.

Declining affordability threatens new car demand and new car prices. Either factor can have a big impact on auto maker profitability.

RBC analyst Tom Narayan thinks things will get more difficult for auto makers as the year wears on. “Where we see the most risk is in Ford’s expectation that they can hold pricing this year. So far this year pricing has remained resilient, but we think affordability could becoming an increasing headwind,” wrote the analyst in a recent research report.

Narayan rates Ford shares Hold and has a $12 price target for the stock, a little lower than the average analyst price target of about $13.40 a share.

Overall, 33% of analysts covering the company rate shares Buy. The average Buy-rating ratio for stocks in the

S&P 500

is about 58%. A year ago, 48% of analysts covering Ford stock rated shares Buy. The headwinds Narayan described have sapped analyst enthusiasm for Ford shares.

Investors seem to feel the same way. Coming into Tuesday trading, Ford stock is down about 15% over the past 12 months while the

S&P 500

is flat and the

Dow Jones Industrial Average

is up about 3%.

Write to Al Root at allen.root@dowjones.com