When it comes to iconic car manufacturers Ford Motor Company (NYSE:F)there are plenty of talking points. Investors might talk about the vibrant 5.5% dividend yield, the huge losses on electric vehicles (EVs), the battle in China and even the dominance in SUVs and trucks. But the best part of Ford right now, Ford Pro, is what no one seems to be talking about.
Booming company
“Ford+ is on track, our underlying quality is improving and Ford Pro demonstrates the tremendous benefits we have across our businesses,” said Ford President and CEO Jim Farley. Ford+ is the automaker’s new three-pronged business strategy. Farley is right about one thing: Ford Pro, which produces Ford’s commercial vehicles, is showing a huge advantage right now. Let’s take a quick look at the results for the first half of 2024.
During this period, Ford Pro generated $5.6 billion in earnings before interest and taxes (EBIT), which easily exceeded the $2 billion EBIT of Ford’s traditional business, Ford Blue. And Ford Pro is in a different universe compared to Model E, Ford’s electric vehicle division, which posted a $2.5 billion loss.
Additionally, Ford Pro is growing faster than Ford’s traditional business and is demonstrating pricing power. During the first half of 2024, Ford Pro sales grew 21%, while wholesale rose just 12%. This makes Ford Pro very different from Ford Blue, responsible for the company’s traditional gasoline vehicle business, which actually posted a 3% decline in sales, while wholesale saw a 4% decline.
And Ford Pro’s first-half EBIT margins were a whopping 15.9%, an improvement of 290 basis points year-over-year and well ahead of Ford’s traditional business, which generated EBIT margins of just 4.3%.
Focus on Ford Pro
Ford has said outright that consumers will buy every Super Duty truck and Transit utility vehicle the company can make, and management has adjusted plans to add 100,000 units of capacity at the Ontario, Canada, plant to add more To produce Super Duty trucks. .
Another overlooked aspect of Ford Pro is its subscription service, a high-margin business. Ford Pro software subscriptions rose 35% in the second quarter and the company’s mobile repair orders more than doubled.
Expect the trend of a booming Ford Pro and slowing growth in Ford’s traditional businesses to continue in the near term. In fact, management has raised Ford Pro expectations to a full-year EBIT range of $9 billion to $10 billion, compared to prior expectations of $8 billion to $9 billion, driven by organic growth, pricing power and a favorable product mix, while it lowered Ford expectations. Blue $1 billion on each side of the range to between $6 billion and $6.5 billion, driven primarily by higher warranty costs.
What it all means
While investors could base their investment thesis in Ford on its healthy dividend or its profitable SUVs and full-size trucks, it would be a big mistake to just look at the Ford Pro, which is quickly becoming its cash cow. In fact, it’s possible that Ford Pro’s margins will become even higher once its subscription and repair services expand and generate more high-margin revenue.
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Daniel Miller holds positions at Ford Motor Company. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
The Best Part of Ford That No One Talks About was originally published by The Motley Fool
