Ford Motor Company (F) Earnings Call Transcript & Summary

Good day, everyone. My name is Layla, and I will be your conference operator today. At this time, I would like to welcome you to the Ford Motor Company Second Quarter 2026 Earnings Conference Call. [Operator Instructions] At this time, I would like to turn the call over to Maria Ricciardone, Chief Investor Relations Officer.

Thank you, Layla, and welcome to Ford Motor Company's Second Quarter 2026 Earnings Call. I'm Maria Ricciardone, Ford's new Chief Investor Relations Officer. I most recently came from Lockheed Martin, where I was Treasurer and Head of Investor Relations. I joined Ford because the opportunity ahead is tremendous. Few companies today are navigating a transformation of this scale and this consequence. My focus will be straightforward; clear, consistent communication with all of you and ensuring the market understands how our differentiated strategy translates into profitable growth, capital discipline and shareholder value. With that, let's jump in. With me today are Jim Farley, President and CEO; and Sherry House, CFO. Joining us for Q&A is Andrew Frick, President of Ford Blue and Model e, Alicia Bohler Davis, President of Ford Pro; Kumar Galhotra, Chief Operating Officer; and Cathy O'Callaghan, CEO of Ford Credit. Jim will give a high-level overview of the business, and Sherry will provide added texture on the financials and guidance. We will be referencing non-GAAP measures today. These are reconciled to the most comparable U.S. GAAP measures in the appendix of our earnings deck. You can find the deck at shareholder.ford.com. Our discussion also includes forward-looking statements. Our actual results may differ. The most significant risk factors are included on Page 20 of our deck. Unless otherwise noted, all comparisons are year-over-year. Company EBIT, EPS, and free cash flow are on an adjusted basis. Upcoming IR engagements include Mike Aragon, President of Integrated Services at the Goldman Sachs Communacopia and Tech Conference in San Francisco on September 8, and the Morgan Stanley Annual Laguna Conference in Laguna Beach on September 17. Now I will turn the call over to Jim.

Thank you, Maria. I want to start by thanking our extended Ford team, all of our dealers and our suppliers for their commitment to delivering on our Ford+ plan. I especially want to highlight all the Ford team members who worked so effectively through the Novelis disruption. I also want to recognize our team in Canada, along with our labor partner, Unifor, under the leadership of Lana Payne for reaching a ratified 3-year agreement covering all of our Canadian employees. Our business in Canada and our manufacturing operations in Oakville are really important to our future at Ford. And this agreement also underscores how important USMCA is to our future at Ford and the opportunity we have to build a framework that levels the playing field for North American manufacturers just like Ford against the mass imports from Japan and South Korea that carry a huge currency advantage. In the quarter, we delivered a strong performance, generating $48.3 billion in revenue and $2.5 billion in adjusted EBIT. We are also raising and narrowing our full year adjusted EBIT guidance to between $10 billion and $11 billion, a $1 billion raise at the midpoint. The most important part of the quarter is the growing evidence that our strategy is working. Ford is becoming a more profitable, more disciplined and generally a different company. Our Ford+ plan focuses on 3 complementary areas. Of course, we have first our core auto operations, our retail and commercial vehicles that are becoming more profitable and more dependable. Second, we have the software and physical services layer, which is growing, margin accretive and built in everything we do at Ford. And third, adjacency businesses such as Ford Energy that open all new sources of profit for the company. We play only where we have real competitive advantage or we can build one, and we're ruthless about where we put our money. Every dollar must earn durable returns and drive profitable growth. So let's talk through each of these areas. On core automotive operations, our execution is underpinned by a fundamentally stronger industrial system. For more than 3 years, we've been relentless about building top quality, and that work is showing up. In our home market, Ford finished #1 among All Mainstream Brands in J.D. Power's 2026 Initial Quality Study. We see this win as a first down payment on a much more consequential virtuous circle, going from initial quality to long-term durability, lowering our warranty costs even further, fewer recalls, stronger customer loyalty, more pricing power and, for our conquest and growth, improved resale value. Ford's quality renaissance goes hand-in-hand with our equally intense drive to improve our cost structure. We have significantly reduced our warranty and material costs since 2024, and we continue to optimize costs as we enter a heavy new product launch period over the next 3 years. Turning to the products themselves. We're reinforcing our strength in our trucks, our vans, our [personal utility] and off roaders, iconic brands and distinctive products delivering real pricing power. We can see it in the quarter. In Ford Blue, F-Series remains the #1 truck brand, outselling the closest competitor by more than 80,000 units in the first half of this year and is on track for 50 straight years at the top. That's 5 decades of trust and capability with our customers, and we intend to extend our lead. But it's not just F-Series that makes our truck business strong. We continue to grow our customer base across our entire lineup that spans every price point in the U.S. truck market from our Maverick all the way through the top end of our Super Duty. And there is much more to come soon, including an all-new F-Series and an all-new Super Duty. We also continue to see momentum with our off-road enthusiast vehicles. In fact, they now make up 25% of our U.S. sales in the second quarter. We made a huge bet on Bronco, Tremor and Raptor, and has paid off with higher growth and higher margins. And these vehicles are bringing new customers to Ford. They're younger, more affluent and more geographically diverse. And we are investing to grow our leadership in this space. Stay tuned. Hybrids are another strength for Ford we plan to build on. The F-150 hybrid leads among full-size trucks and the Maverick hybrid achieved record sales in the first half to become America's best-selling hybrid pickup. We plan to extend our hybrids across our entire lineup over the next several years. On the commercial side, Ford Pro is the cornerstone of our global business and holds commercial vehicle market share leadership in both North America and Europe. And the Oakville expansion I referred to earlier is on track to launch in the fourth quarter of this year, adding up to 100,000 units of additional Super Duty capacity. We're investing in Super Duty production to increase our manufacturing flexibility, to add resilience and to meet pent-up demand. These investments will help drive Pro's future financial performance. And turning to Model e, we're aggressively driving down Gen 1 costs and will become a major scaled competitor as we invest in affordable versatile EVs. The Louisville plant changeover for the new UEV platform is well underway at Ford. You may have seen prototypes now of our first vehicles off the UEV platform testing on roads across the U.S. Customer deliveries will begin next year. The first UEV product will compete in the affordable heart of the U.S. EV market, where we'll offer customers a wholly new proposition that we can't find in the market today. It starts around $30,000. It has more cabin room than the Toyota RAV4. Plus it has a pickup truck bed, it has bidirectional charging capability, incredibly fun to drive and personalized technology in the experience. In fact, we just announced Apple last week, as you know, will be the embedded map provider for every UEV platform vehicle. And we are very excited to show you much more about our move to be among the leaders in the EV space. In Europe, as you saw last week, we announced our agreement with Geely, which will bring speed and capital efficiency to our European operations. The second area of our Ford+ plan is software and physical services, including our parts business. These businesses have significant room to grow, are central to our 8% margin target by 2029, and the idea is really simple: combine our digital services, our large dealer network, our physical services into one seamless experience, building a flywheel across software, vehicles and parts. On software, we're turning a one-time sale into a lifetime relationship, as we said. We now have over 14 million connected vehicles. That's an enormous base to grow from. Our goal is to activate that base, driving real digital usage and convert engagement into reoccurring high-margin revenues. Our services aren't just digital, they're also physical. We continue to grow our parts business. For example, we're expanding our parts catalog. We're growing our sales to U.S. wholesalers and co-investing with our dealers to increase service bays and our mobile fleet. Customers love our mobile service. We have over 5,000 mobile service vans and trucks on the road. And we see Net Promoter Scores much higher for remote service, leading to higher loyalty. In fact, in Q2, we delivered 1.5 million remote services at Ford, 1.1 million just in the U.S. Finally, we're making progress on our adjacent businesses. Earlier this year, we launched Ford Energy, reporting through Model e. It's a strategic business for us at Ford, but one with a very short payback. Ford Energy can win because it's built on capabilities few companies can match, tariff-resilient, world-class U.S. manufacturing, leading battery technology, an iconic American brand that is already familiar to communities who are most in need for grid support and infrastructure upgrades and, of course, the ability to leverage our vast auto service expertise. By late next year, we expect to reach 20 gigawatt hours of annual capacity for Ford Energy, which is -- and we have potential to expand beyond that. We believe this will position Ford Energy among the leading energy storage manufacturers in North America. Scale matters in this business. It drives efficiency, improves the levelized cost of energy and creates a competitive advantage that is hard to match without the scale of global auto to leverage. We're building a business that can integrate further into energy ecosystem and that aspires to create value far beyond the sale of our DC blocks. Our agreement with EDF Power Solutions North America is a good step to serve a broad and enduring customer base. We're in talks with a wide range of strategic customers and look forward to sharing more with you at the right time. As you can see, Ford is becoming a more disciplined, higher-return company. We have strong automotive business with an increasingly fit industrial system. To complement that business, we're scaling high-margin software and physical services around a seamless customer experience while leveraging Ford Credit. And adjacent to all of that, we're building new businesses like Ford Energy, where we can establish a competitive advantage. Over to you, Sherry.

Thank you, Jim, and hello, everyone. Our second quarter results demonstrate our resiliency and intentional actions to drive profitability. In a complex macroeconomic and industry environment, we generated $48.3 billion in revenue, down 4% year-over-year, while earning $2.5 billion in adjusted EBIT, up 17%. Revenue was impacted due to expected volume reductions stemming from lower Novelis aluminum supply and the sunsetting of certain vehicles as we refresh our portfolio. Consistent with our deliberate actions to enhance profitability, this quarter's EBIT strength was largely a result of strong mix and net pricing. We generated $2.1 billion in company adjusted free cash flow and ended the quarter with a strong balance sheet, including $22.3 billion in cash and $43.4 billion in total liquidity. We remain committed to our investment-grade rating and returning capital to shareholders. In fact, over the last 5 years, we have returned more than $16 billion through dividends and anti-dilutive share repurchases. And today, we announced a third quarter regular dividend of $0.15 per share. Before unpacking the segment results, I want to address our $1.3 billion net loss in the quarter. As we announced in December 2025, we recognized a onetime special item charge of $3.6 billion, of which approximately $500 million was cash. This charge was related to the May disposition of the BlueOval SK Battery Joint Venture. We expect the vast majority of the remaining cash charges related to our December announcement, which total up to $2 billion to be completed by the end of the year. Operationally, we are successfully navigating the Novelis aluminum supply recovery plan, and we remain confident in our net $1 billion EBIT improvement, heavily weighted to the second half of the year. Year-to-date, we have incurred about $800 million in Novelis related temporary costs and now expect a full year cost impact of about $1.5 billion. The hot mill restart is on track and contingency material is secured. U.S. inventory of 52 retail days supply is slightly below our target of 55 to 65 days, and we expect to return to targeted levels as the recovery progresses. Turning now to the core automotive highlights. Ford Blue delivered $1.1 billion in EBIT on revenue of $26.1 billion. Our revenue and EBIT were up 1% and 72%, respectively, reflecting favorable product mix enabled by U.S. regulatory changes and higher net pricing, more than offsetting an 8% decline in wholesales. These results demonstrate that our focus on off-road vehicles and passion products is resonating. We had record sales for the Bronco family in Q2, and our 3-row adventure utilities are growing with Explorer and Expedition retail sales up 22% in the quarter. F-150 remains strong while inventories recover. With a disciplined go-to-market execution in Q2 that included the highest retail share, lowest incentive spend, highest share of revenue with sales focused through our most profitable channels. Ford Pro delivered a solid quarter despite significant headwinds, delivering $1.7 billion in EBIT and $17.8 billion of revenue, down 26% and 5%, respectively, primarily due to temporary Novelis disruption. We continue to see growth in software and physical services, highlighting the durability of our ecosystem strategy even in periods of disruption. This resiliency positions Pro to benefit from second half volume recovery. We are confident in the pricing power of our Pro business. And although early, 2027 model year customer contracting in North America is off to a fast start, placing us about a month ahead of where we were last year. For Model e, we reported an EBIT loss of $919 million on revenue of $1 billion, reflecting a 31% EBIT improvement on declining revenue. This was our third consecutive quarter of year-over-year EBIT improvement. Progress was driven by structural cost reductions, rightsized Gen 1 volumes and lower U.S. incentives following regulatory relaxation. We continue to prioritize profitability and capital efficiency on our path to breakeven. As such, we expect to improve Gen 1 EBIT by approximately 40% year-over-year in 2026, paving the way for our investments in UEV and Ford Energy. Our software and physical services keep getting stronger. Total paid subscriptions grew about 50% to roughly 1.6 million, including more than 900,000 Ford Pro Intelligence paid subscriptions. Customers are actively choosing to pay for these services beyond an included trial, a direct signal of value. We've also seen positive net pricing in our parts business in line with the industry. These services carry attractive margins and create recurring customer relationships. Ford Credit delivered another solid quarter with EBT of $757 million, up $112 million. These results reflect our strong financing margin, our high-quality portfolio and our disciplined approach to capital and risk management. We remain confident in the quality of our portfolio and ability to continue supporting the market shift toward longer-term financing options for customers. We also continue to execute on our multiyear certified preowned enterprise strategy, which ultimately protects our residual values. According to third-party data, our year-to-date CPO unit sales growth in the U.S. is over 20%, now positioning us as the #2 CPO brand in the market. Now I'll turn to our 2026 outlook. For the full year, we now expect company adjusted EBIT of $10 billion to $11 billion, narrowing the range and increasing the midpoint by $1 billion, driven by strong pricing and mix. An increase in adjusted free cash flow to $6 billion to $7 billion, which now includes flow through of this higher EBIT and our expectation to receive in 2026 about $500 million of the $1.3 billion IEEPA reimbursement we booked in Q1. And capital expenditures remain unchanged at $9.5 billion to $10.5 billion as we invest in higher return growth opportunities. Our guidance does not include potential impacts of a significant escalation in the Middle East or a material downturn in the U.S. economy, which could have a substantial impact on industry demand. For our full year segment outlook, we now expect an increase in Ford Blue's EBIT range to $5 billion to $5.5 billion, a narrowing of Ford Pro's EBIT range to $7 billion to $7.5 billion, an improvement in Model e losses to about $4 billion. This includes about $1 billion in incremental investment for UEV and Ford Energy, mostly weighted towards the second half of the year. And for Ford Credit, EBT is now expected to be above $2.5 billion. Our guidance continues to assume a U.S. SAAR of 16 million to 16.5 million units, commodity headwinds of just above $2 billion and we remain on track to deliver $1 billion in material and warranty cost reductions in 2026, enabling our increased investments to UEV and Ford Energy. For U.S. industry pricing, we now expect full year to be about 0.5 point higher at plus 50 basis points. The accomplishments this quarter reinforce our trajectory. The investments we are making in our truck lineup, UEV platform, Ford Energy and high-margin services will bolster our margins over time, keeping us firmly on the path to our 8% EBIT margin target by 2029. With that, let's open the line for your questions.

[Operator Instructions] Your first question will come from the line of Andrew Percoco with Morgan Stanley.

Can you guys hear me?

We sure can. Thank you.

Great. Well, congrats on the really strong results this quarter. I do want to start on the energy storage side of the business and just hoping to get more of an update in terms of the conversations that you're having on that front. Obviously, we saw the EDF agreement. So utilities do seem like the obvious customer here just given some of your long-standing relationships there with Ford Pro. But I am just curious to what extent you're having conversations directly with hyperscalers that might want to lock up some of your domestic battery capacity. So it's really a 2-part question. One, are you engaging with the hyperscalers about direct offtake? And two, what inning would you say you're in, in terms of getting some incremental contracts to markets -- to the market?

Sure. Just to take a step back, what we hear from our customers is we're in the center of the market, a 20-foot containerized LFP prismatic solution DC block with a 2- and a 4-hour configuration is exactly the heart of the market. So that's a real positive. They also appreciate our approach to service, prognostics, remote monitoring. That's a real big positive that Ford can bring to the -- as a product. We are -- people are excited about the talent in our team. We have specialized talent that have real experience in this market building this business. The kind of conversations we're having, we're in the real depth now. The demand signal is very strong for us. And given there's about a 6-month lag between kind of when you start, when the projects have to land, we're kind of a little bit -- we're like in the first or second inning to tell you everything about the customer for '28 capacity, but it looks really good. We're in line with our forecast inside the company, which I won't go over, but we're seeing a broad group of customers. They are not just utility providers. There are other. In fact, every day that goes by, we see more broader application of storage batteries from broader customer bases. We have a whole process where we're monitoring the customers as they go through because these are projects oriented -- these are project quotes. We go from kind of initial early discussions, then we go through the legal and contracting phase and then we have the final contract at the end. So I would say we're kind of in the third inning of selling out the 2028 capacity of 20 gigawatt hours. I would say, just to emphasize in my speech that we have the capacity to upgrade at Kentucky 1, and that we are building prototype cells already in Marshall, Michigan. So this is not a theoretical business. We are building cells already. And obviously, Kentucky 1 is building out a little bit later than Marshall. I hope that gives you some more texture.

Yes, that's great. If I could just sneak a quick follow-up there. What are some of the things that you're looking at specifically in terms of whether or not you decide to add additional capacity? Is it simply booking out the first 80% of that 20 gigawatt hours over a multiyear period? Or are there other things that you're kind of looking at, whether it's legislative tax credit related in terms of your decision to go ahead and move and add more capacity?

I think your list is pretty good. I think it's basically 3 areas. Obviously, the tax treatment is very important for customers. We are also looking very carefully at strategic choices for the company. And we're looking obviously at the customer flows. So I would say the list you have is a good working list. I don't want to get any more specifics than that.

[Operator Instructions] And our next question will come from Alex Perry with BofA.

Congrats on a strong quarter. So I just wanted to ask a bit more on the mix opportunity. So off-road performance trims and other higher-margin trims such as your V8 series continue to increase as a percent of sales. Maybe just talk to us what are the key drivers of the strong trim mix? And how we should be thinking about the mix benefit throughout the balance of the year?

Yes. Thank you, Alex. This is Andrew Frick. We have seen certainly some product and series mix as a position of strength for us right now. And I think a couple of the key drivers are it's a direct reflection of the choices we've made in our brand positioning as well as some of the regulatory environment changes that help us match customer demand. So Jim made some comments in his statements in his opening comments, and I'll maybe add a little context to that. We've seen growth in our portfolio mix, our product portfolio mix and large utilities and the Bronco family. In fact, Bronco family had our best first half sales ever. You mentioned off-road mix. We grew that by over 3.5 points in the first half and actually in the second quarter, it was up over 4 points year-over-year. And we have series mixes like Tremor that is now 15% of our Expedition sales and Raptor is really strong right now across our portfolio. We've grown our Raptor sales 9% so far this year. So -- and you mentioned the V8, so we're increasing our V8 mix as well. Bottom line, to answer the question is we expect that level of product mix and series mix to continue through the balance of the year.

Our next question will come from Joseph Spak with UBS.

Maybe you could just talk -- I heard in the prepared comments that the Novelis ramp is proceeding as expected. Maybe you can just talk a little bit about what you see for F-Series here in the back half? Because in your guidance, you do factor in the lower volume recovery. So that's a little bit more measured. And it doesn't sound like it relates to Novelis. So is that just some prudence because of what you're seeing in terms of the competitive dynamics in that segment and you want to remain pretty vigilant there to protect price?

Yes. Thanks. I'd let Andrew to comment, but what we are seeing -- F-Series is around 45-day supply, which for us, is very lean. So we have a lot of upside on the wholesale side, not just from retail side. Andrew, anything you want to highlight?

Yes, I would just add the overall truck demand right now across from Maverick all the way up to Super Duty is really strong, and we're seeing strength across the lineup. Maverick hybrid achieved a record in the first half. For F-Series specifically, we're really confident in the strength of our F-Series business right now. Jim mentioned, we're on our way to 50 years of leadership. And our -- we lead the competition right now in key go-to-market metrics. So we have significantly lower incentives, higher share, higher share of revenue with really strong turn rates, which is an indication of the strong demand. And we're also being really disciplined on our channel mix with the limited production we have. In fact, we've had a really low rental volume, where a lot of our competitors have really increased this year-over-year. So as Jim just mentioned, our days supplies are in good shape at 45. That gives us upside coming out and the demand continues to look really strong.

What drives the lower volume recovery?

Can you repeat that, Joe? I didn't hear it -- we didn't hear you exactly.

You mentioned in the guidance that the lower aluminum headwind is offset by a lower volume -- the volume recoveries at the lower end. So I'm just curious what changed there?

It's just mix. It is just mix. And as I said, that we are planning to be able to still have a year-over-year improvement of $1 billion. So you had roughly $2.5 billion on the top line, $1.5 billion due to Novelis costs now lower than what we had originally thought, before we thought $1.5 billion to $2 billion, but now it's tracking at the lower end. So the results are going to be the same in terms of what we guided, and it's the mix change.

Your next question will come from Mark Delaney with Goldman Sachs.

A question, which is on the tariff and trade environment. I think on tariffs, you left your outlook unchanged. But under the current policy rules. Maybe talk about the ability to further mitigate that going forward. And you also spoke a bit on USMCA. And Jim, curious if you have any early thoughts around how the discussions are going? And based on some of the proposals to potentially require more U.S.-specific content, how might that affect Ford's operations and supply chain?

Sure. Well, let me just comment on USMCA because it's very critical. Look, Ford is an unusual company in a way we build the most in the U.S. We have the best ratio between imports and our local production. We also export the most. And even for us, this -- an improved USMCA could be a great opportunity for the industry and for Ford. What we're -- and we've had really good not only conversations with the U.S. administration and USTR, but also with Mexico and Canada. So I think because of Ford, we're Ford. We have great access to everyone. And I think at the top of the house, we all have the same kind of principle, which is build a stronger U.S. industrial base. Our orientation for USMCA is maybe a bit different than others. We want to make it easier for Ford and other U.S. makers to compete with Japan and South Korea. They have incredibly strong local supply chains like steel and aluminum. They have much weaker currencies in some cases, 40-year lows, and they have a modest 15% tariff, even some of our domestic competitors import from those locations, and they have huge advantages. We are prepared to support revising the USMCA so long as it allows the promotion of more competitive U.S. auto sector. And that's really our lens for this negotiation. It's really we want to put Ford and companies like Ford that are committed to U.S. manufacturing in an advantaged, a better level playing field with these foreign competitors. We're in the early days of engaging. So at this point, I think it's very early days, but that's going to be our orientation. In terms of tariffs, et cetera, I think there has been some recent news. But I would say as a whole, Ford, I think, has done a good job with our exposure to tariffs. And I think we've worked really hard with the administration as well as even our strategy around collecting cash to really manage through this in a way that advantages the company. I don't want to get into specifics because I think those are pretty well documented by the team.

Your next question will come from Dan Levy with Barclays.

Okay. Great. About a month ago, you put out a headline that you ranked #1 in this J.D. Power Initial Quality Study. And I know that warranty and quality has been sort of a journey for you and you reiterated some of the cost benefits this year. But maybe you can just give us a sense of just an update for [indiscernible] and what this headline potentially means on incremental cost outs in the future on the warranty side? Just any reads factoring as well for 2027 and beyond?

Okay. I think, Sherry, it would be great to get your view from the financial standpoint, but I think the real essence of this is, is this question about the lagging indicator of recalls versus our initial quality. And I would just emphasize that recalls are not all the same. The software recall and a powertrain recall are quite different things. So Kumar, do you want to make a comment about the kind of cost variance that you're seeing.

So I'll go ahead and start with the financials. So we do see continued improvement on a year-over-year basis. I'll be very clear about that on warranty as well as material cost. And that is what comprises the $1 billion year-over-year improvement that we're looking to see that we do plan to reinvest in UEV and Ford Energy. In terms of where that's coming from, it's coming from coverages, which is initial quality, which is the #1 mainstream brand award directly relates to. And that is one of the best indicators is I'll let Kumar talk about that, our recall financials will also follow suit shortly.

Yes. The initial quality improvement is great, but this focus is permanent. We're focusing on long-term durability and obviously, lowering warranty costs. That will turn into eventually lower recall costs as well. So this year, we've recalled about 12 million vehicles, but the number of recalls is down very substantially from last year. It's down about 40%. And this reflects our intensive strategy to quickly find and fix any hardware or software issues and go the extra mile to protect our customers. We are seeing substantial improvements in our newer model years both in numbers of recalls and recall volumes and, of course, warranty. So it's a bit of a, like Jim said, a virtuous cycle that's starting to begin. Initial quality is great. It will turn into long-term quality and as well as recall improvements over time.

This is one of the most important road maps to our 8% margin is continue to close the cost gap. And we're seeing initial -- good initial indications. We want to do absolutely what's right for the customer. What I'm most excited about is the work I'm seeing in the next-generation products in the powertrains. The team is absolutely obsessed with these next generation of products being engineered with the right supply chain to make a massive move forward in our cost of quality.