Analysis

Why Ford Stock Tumbled 22% in October

October was a busy month for Ford Motor Company (F 1.64%) as the company reported third-quarter earnings and ended the United Auto Workers strike with a new contract.

However, concerns about sluggish demand for electric vehicles and continued losses from the segment, as well as the higher labor rates under the new contract, all weighed on the stock. As a result, Ford shares finished October down 22%, according to data from S&P Global Market Intelligence.

As you can see from the chart below, Ford shares declined over much of October before falling sharply on the earnings report last week.

F data by YCharts.

Ford hits the brakes

News around the UAW strike hung over Ford for much of the last month, and the automaker announced some minor layoffs in the face of the strikes at its plants. Additionally, signs emerged of challenges in the EV industry, including a disappointing earnings report from Tesla earlier in the month in which CEO Elon Musk bemoaned the impact of rising interest rates on demand and underscored how crucial it was for his company to be competitive on price.

Ford reached a tentative agreement with UAW on Oct. 25 that includes a 25% raise over the duration of the 4.5-year contract as well as $8.1 billion in plant investments and a $5,000 ratification bonus. However, investors mostly shrugged off the news as the general wage hike was expected.

A Ford Lightning pickup truck in Switzerland.

Image source: Ford.

Ford stock fell 12% after its earnings report on Oct. 27 as the company beat estimates on the top line but missed on profits. It also pulled its guidance for the year due to the impact of the UAW strike.

Revenue rose 11% to 43.8 billion as it continued to benefit from higher prices even as units sold were flat. On the bottom line, adjusted earnings per share rose from $0.30 to $0.39, which was short of the consensus at $0.43.

Investors also seemed disappointed by the results in its electric vehicle division, where revenue was up 26%, but its operating loss widened to $1.3 billion.

Management said Friday that it was pausing $12 billion in investments in electric vehicle production due to the challenging demand environment for the vehicles.

Is Ford a buy?

Ford was well on its way to meeting its $11 billion to $12 billion operating profit target before the UAW strike, and the impact of the strike will be temporary, given that it’s now over. It’s unclear how it will impact fourth-quarter results.

For dividend investors, Ford looks like a good buy as it offers a dividend yield of 6.2%. However, the stock looks likely to be pressured for the foreseeable future due to the headwinds in the electric vehicle industry.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.

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