Ford's Surprising Growth Engine: Ford Pro
In an unexpected twist, the most compelling growth story for Ford Motor Company (NYSE: F) isn't its dividends, dominance in high-value trucks and SUVs, or its foray into electric vehicles (EVs). Instead, Ford Pro, the company's solution for commercial customers, is taking center stage as its fastest-growing and most lucrative segment.
Historically, commercial sales were viewed as low-margin headaches for Detroit automakers. However, Ford Pro is rewriting this narrative with its rapidly expanding business model. In contrast to Ford Blue, the automaker's traditional gasoline vehicle business, which earned nearly $7.5 billion in EBIT (earnings before interest and taxes) in 2023 with a 7.3% EBIT margin, Ford Pro is surging ahead. The division reported an impressive $7.2 billion in EBIT in 2023, boasting a significantly higher 12.4% EBIT margin.
Remarkably, Ford Pro not only demonstrated a robust revenue growth of 19% in 2023, comparing to the previous year, but its EBIT of $7.2 billion more than doubled from 2022—a testament to the division's accelerating growth trajectory. This performance starkly contrasts with Ford Blue, which saw a modest EBIT increase of $615 million year-over-year, compared to Ford Pro's staggering $4 billion uptick.
Driving Ford Pro's thriving business are the launches of all-new Super Duty trucks in North America and Transit Custom vans in Europe—vehicular franchises that have been well-received in their respective markets. Additionally, the division's burgeoning software subscriptions and mobile repairs services, which saw a 50% jump in the fourth quarter of 2023 alone, play a critical role in driving growth. Management anticipates Ford Pro's EBIT margins will ascend to the mid-teens by 2026, further promising an even more prosperous future.
For investors, Ford represents a tantalizing investment opportunity. The stock, which trades at a modest 11.8 times earnings, not only offers a nearly 5% dividend yield but also rewards shareholders with occasional supplemental dividends. Ford Pro’s rapid and profitable expansion signals a brighter bottom line for the company, which continues to enjoy success in its full-size truck and SUV segments.
Despite the challenges posed by Ford’s early transition to EVs, which culminated in a $4.7 billion loss in 2023, the company’s long-term prospects in the electric vehicle market remain optimistic. Expected improvements in production capacity, growing EV demand, and cost reductions are set to enhance Ford's financial health significantly.
Investing in Ford is an increasingly compelling proposition, offering a mix of attractive dividends, robust growth potential through Ford Pro, and a promising future as the company pivots towards electric vehicles. However, it remains to be seen if investors will fully recognize and reward Ford's strategic advancements, given the stock’s historical performance resilience in the face of substantial bottom-line improvements. Savvy investors, though, might find this the perfect moment to appreciate and invest in Ford's intelligent transformations.
Analyst comment
Positive news. Ford Pro, Ford’s solution for commercial customers, is experiencing rapid growth and high profitability. With a 19% increase in revenue and an EBIT of $7.2 billion, Ford Pro is outperforming Ford’s traditional gasoline vehicle business. The launches of new truck and van models, as well as software subscriptions and mobile repairs services, are driving this success. Ford’s transition to EVs may have caused some challenges, but the company’s long-term prospects in the electric vehicle market remain optimistic. Investors may find this the perfect moment to appreciate and invest in Ford’s intelligent transformations.
