The best part of Ford that no one talks about

When it comes to the flagship car manufacturer Ford Motor Company (F 1.80%)there are lots of talking points. Investors could look up its vibrant 5.5% dividend yield, its massive losses in electric vehicles (EVs), its struggles in China and even its dominance of SUVs and trucks. But the best part of Ford now, the Ford Pro, is what no one seems to be talking about.

Booming business

“Ford+ is on the right track, our core quality is improving, and Ford Pro shows the huge advantage we have across all of 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 makes Ford commercial vehicles, has a massive advantage right now. Let’s take a quick look at the results for the first half of 2024.

During this time, Ford Pro generated $5.6 billion in earnings before interest and taxes (EBIT), which far exceeded the $2 billion EBIT of Ford’s traditional business, Ford Blue. And the Ford Pro is in a different universe compared to the e-model, Ford’s electric vehicle division, which posted a $2.5 billion loss.

In addition, Ford Pro is growing faster than Ford’s traditional business and is showing pricing power. In the first half of 2024, Ford Pro grew revenue by 21% on just 12% growth in wholesale sales. That makes Ford Pro very different from Ford Blue, responsible for the company’s traditional gasoline vehicle business, which actually saw revenue fall 3 percent on a 4 percent decline in wholesale.

And Ford Pro’s first-half EBIT margins were 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 been adamant that consumers are buying every Super Duty truck and Transit commercial van the company can make, and management has adjusted plans to add 100,000 units of capacity at its plant in Ontario, Canada, to produce more trucks Super Duty. .

Another overlooked aspect of Ford Pro is its subscription service, which is a high-margin business. Ford Pro software subscriptions grew 35 percent in the second quarter, and mobile repair orders fulfilled by the company doubled.

Expect the trend of a booming Ford Pro and slowing growth in Ford’s traditional business to continue in the near term. In fact, management raised Ford Pro guidance to full-year EBIT of $9 billion to $10 billion, up from previous guidance of $8 billion to $9 billion, driven by organic growth, pricing power and favorable product mix, while undercutting Ford. Blue $1 billion on either side of the range, between $6 billion and $6.5 billion, driven primarily by higher warranty costs.

What does it all mean?

While investors might base their Ford investment case on its healthy dividend or profitable SUVs and full-size trucks, it would be a huge mistake to overlook the Ford Pro, which is quickly becoming its cash cow. It’s even possible that Ford Pro’s margins will move even higher once its subscription services and repair services expand and generate more high-margin revenue.