FedEx has found a friend in the camp of big, ugly third quarter financial announcements.
The auto giant FED warned of a whopping $1 billion profit hit late Monday in the form of higher parts costs, with the company blaming vendor inflation. Ford now sees third-quarter adjusted operating profits in the $1.4 billion to $1.7 billion range, well below Wall Street estimates for $3 billion.
Somewhat strangely against the big warning, Ford reiterated its full-year operating profit forecast of $11.5 billion to $12.5 billion.
Ford stock fell on the news, with shares of General Motors and Tesla dipping in sympathy. Ford’s ticker page was the most visited on the Yahoo Finance platform early this morning.
The mood on Wall Street is that Ford’s warning is generally a shock given relatively positive views on demand and the bottom line when second-quarter earnings hit in late July. Now, the Street is scrambling to mark down its profit and valuation estimates for the company.
“Vehicles in transit will be seen as ephemeral, but surprise inflation is always a concern,” Evercore ISI analyst Chris McNally said in a note to clients, adding that he sees Ford stock trading down to around $13 from the quarterly let down.
Citi Itay Michaeli appears to have heeded Ford’s warning. Here’s a quick look at his research note.
Ford stock is likely to be in the penalty box near term, says Michaeli.
“While the Q3 guidance does not affect the guidance for the fiscal year, the $1 billion headwind + surprise is now more dependent on a strong Q4 weighing on the shares.”
But Michaeli doesn’t think demand for Ford vehicles has waned
“Ford’s Q3 downgrade confirms ongoing supply chain shortages (Ford mentioned general supply chain issues to us) and inflationary pressures, but doesn’t seem to indicate a demand problem. In fact, it seems to imply a better price/mix than before That said, our initial impression is that the Q3-Q4 run will lean pretty much to the low end of Ford’s $11.5-$12.5 billion fiscal year 2022 range (Citi $11.8 billion).”
What Ford’s warning means for General Motors
“The exact reading to GM is not clear at this point because it depends on how much Ford’s guidance is industry-specific or company-specific. Reviewing the three factors mentioned above: (1) On the 40- 45k units, last quarter, GM faced a similar issue while Ford did not, so it is possible that the Ford Q3 issue is company specific although it is not clear at this point.(2) On the $1 billion of Q3 incremental costs, this is likely to get the most scrutiny because it’s really surprising given what we understand is reasonable at suppliers negotiating lead times and considering Ford ’22 inflation in advance. guidance of $3 billion.
“If GM ends up facing similar headwinds, then, like Ford, it could reduce/eliminate any H2 upside potential resulting from a strong price/mix, and at the same raising questions about what exactly led to this sudden one. If GM doesn’t put up with a headwind like the end, then the reading for GM from here could go really positive on better execution arguably or at least more conservative on the cost outlook.”
Farley previously explained why he is splitting the company internally: It will include one business focused on making electric vehicles and the other on producing gas-powered vehicles.
“I have no idea why other people wouldn’t do it,” Farley told Yahoo Finance’s Pras Subramanian. “I was watching the company literally struggle; I saw a transmission engineer trying to learn about batteries, [the transformation] but it was going to take too much time, we don’t have time, we are behind. So to catch up and pass we have to specialize … I have no idea how we would make this transition if we don’t specialize.”
Brian Sozzi is an editor in general and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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