High Inflation and Parts Delays Slows Ford’s Projected Q3 Earnings

Ford Motor Co. in Dearborn today affirmed its expectation for full-year 2022 adjusted earnings before interest and taxes of between $11.5 billion to $12.5 billion, despite limits on availability of certain parts as well as higher payments made to suppliers to account for the effects of inflation.
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2022 Ford Escape
Despite facing parts shortages for its popular SUVs and trucks, Ford in Dearborn reaffirmed its full-year 2022 adjusted EBIT of $11.5 billion to $12.5 billion. // Courtesy of Ford Motor Co.

Ford Motor Co. in Dearborn today affirmed its expectation for full-year 2022 adjusted earnings before interest and taxes of between $11.5 billion to $12.5 billion, despite limits on availability of certain parts as well as higher payments made to suppliers to account for the effects of inflation.

The supply shortages will result in a higher-than-planned number of “vehicles on wheels” built but remaining in Ford’s inventory awaiting needed parts, at the end of the third quarter. The company believes that those vehicles — an anticipated 40,000 to 45,000 units, largely high-margin trucks and SUVs — will be completed and sold to dealers during the fourth quarter.

According to the company, based on recent negotiations, inflation-related supplier costs during the third quarter will run about $1 billion higher than originally expected.

Ford now anticipates third-quarter adjusted EBIT to be in the range of $1.4 billion and $1.7 billion. This is lower than a current estimate of $2.8 billion forecasted by BofAS.

The automaker intends to announce full third-quarter 2022 financial results — and provide more dimension about expectations for full-year performance — on Oct. 26.

John Murphy, a research analyst at BofAS, offered the following analysis:

“We remain encouraged by (Ford’s) continued focus on the Ford+ plan, including its recent reorganization into two distinct Auto units (Ford Blue and Ford Model e). Simply put, Ford is on the verge of executing something analogous to our Core to Future framework, by which it will strengthen its core business pillars to fund its future business.

“And despite the tough macroeconomic backdrop and this latest news suggesting continued challenges from the supply chain and broader inflation, we believe Ford is just starting to hit a more sustainable inflection in earnings, driven by the combination of a favorable product cadence in the critical US/NA market; redesign/restructuring efforts; and a real push into electrification, autonomy, and connectivity.

He adds General Motors Co. in Detroit is facing comparable headwinds.

“We’d highlight that GM experienced similar challenges in Q2:22 that resulted in 95,000 units sitting in inventory. Ultimately, this news is somewhat surprising as broader macro news suggest supply chains have gotten incrementally better over the last few months. As a side note, American Axle (in Detroit) disclosed last week that GM recently took downtime at two of its facilities.”

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