24/7 Wall St. Insights

• Ford Motor Co. (NYSE: F) stock retreated nearly 20% following its earnings report.
• High warranty expenses and losses on EVs troubled investors.
• Also: 2 Dividend Legends to Hold Forever

Ford Motor Co. (NYSE: F) earnings upset Wall Street. The day after they were released, the stock was down 19% at one point, and it closed down just over 18%. It was an extraordinary crash for a public corporation whose earnings initially seemed reasonably good. The plunge was the worst since 2008.

What happened? Ford posted an earnings drop of 26% from the same quarter in 2023. Earnings for the recent quarter totaled $2.8 billion. Unfortunately, analysts expected the figure to be $3.7 billion.

Investors were troubled by high warranty expenses. Ford Blue, the division that makes gasoline-powered cars, had an operating income of $1.2 billion. Warranty expenses for the quarter were $2 billion, which was $800 million worse than the prior quarter. “Warranty has been a growing issue at Ford over the last five years and has escalated over the past year,” Freedom Capital Markets analyst Mike Ward wrote in a report on the numbers.

Another deeply troubling development was that Ford Model e, the electric vehicle (EV) part of the company’s operations, lost $1.1 billion. That shows how badly Ford’s investment in this sector has gone. EV rival Tesla had a weak second quarter but had a net income of $1.5 billion.

Why did Ford’s stock drop even though it had reasonable profits? Everything else about the company’s numbers was awful.

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