High inflation, parts delays dampen Ford’s projected third-quarter earnings

Despite parts shortages for its popular SUVs and trucks, Ford of Dearborn reaffirmed its adjusted EBIT for the year 2022 of $11.5 billion to $12.5 billion. // Courtesy of Ford Motor Co.

Ford Motor Co. in Dearborn said today that it expects adjusted earnings before interest and taxes for the year 2022 to be between $11.5 billion and $12.5 billion, despite the limits of availability of certain parts as well as higher payments made to suppliers to account for the effects of inflation.

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

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

Ford now expects third-quarter adjusted EBIT to be between $1.4 billion and $1.7 billion. This is lower than BofAS’ current estimate of $2.8 billion.

The automaker aims to announce full third-quarter 2022 financial results — and provide more details on full-year performance expectations — on October 26.

John Murphy, 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 separate Auto units (Ford Blue and Ford Model e). Simply put, Ford is about to execute something analogous to our Core to Future framework, whereby it will strengthen its key business pillars to fund its future business.

“And despite the challenging macro backdrop and this latest news suggesting continued supply chain challenges and broader inflation, we believe Ford is just beginning to achieve a more sustainable inflection in earnings, driven by a combination of a favorable product momentum in the critical US/North American market; redesign/reengineering efforts; and a real push towards electrification, autonomy and connectivity.

He adds that General Motors Co. in Detroit faces comparable headwinds.

“We note that GM encountered similar challenges in Q2:22 which resulted in 95,000 units in inventory. Ultimately, this news is somewhat surprising, as broader macroeconomic information suggests that supply chains have gradually improved over the past few months. By the way, American Axle (in Detroit) revealed last week that GM recently shut down two of its facilities.

About Frances R. Smith

Check Also

Moke Californian EV order banks open, pricing starts at $41,900

The Moke International Electric Moke Californian debuted a few weeks ago without any pricing information. …