said a lack of parts and inflation would leave it with a third-quarter operating profit below consensus estimates.
But Wall Street doesn’t seem that worried
(ticker: F) or their peers. There are even some positives to be taken from Ford’s surprise report.
In Monday’s disclosure, Ford said it will not finish producing 40,000 to 45,000 higher-margin trucks and SUVs it had planned to produce by the end of the third quarter. These vehicles will be completed by the end of the year.
Ford says the shortfall in output will result in a quarterly operating profit of about $1.4 billion to $1.7 billion, along with $1 billion in higher-than-expected costs. Analysts were predicting about $2.9 billion in operating profit before the update. Based on the midpoint of forecasts in management’s new guidance, Ford is about $1.4 billion short of operating profit.
The extent of that loss is not that bad. RBC analyst Joseph Spak broke down the shortfall, writing that the unfinished vehicles cost the company about $600 million in operating profit, or about $14,000 each. (For Ford’s entire lineup, including lower-margin cars, operating profit per unit of vehicles sold in the first half of 2022 was about $3,000.)
That $600 million, plus the $1 billion in higher costs, is $1.6 billion, higher than the $1.4 billion lost relative to Wall Street consensus. The implication is that Ford could be hit by expectations for the third quarter of about $200 million in a normal operating environment.
That is only a theoretical possibility. However, despite the disappointing third-quarter news, Ford is sticking with an earlier forecast of full-year operating profit of $11.5 billion to $12.5 billion. Given its performance in the first three quarters of the year, Ford will need to earn about $4.5 billion in the fourth quarter to reach that number.
That would be a huge result. Spak is forecasting about $3.1 billion, and the consensus call on Wall Street is about $3.2 billion in operating earnings.
If the $600 million in operating profit is added, Spak estimates that Ford missed out on the unfinished vehicles to call its forecast for fourth-quarter earnings to about $3.7 billion, and would raise the consensus figure to $3.8 billion. Ford expects to do much better than that, with a strong finish to the year.
Citi analyst Itay Michaeli says Ford will need to have a much more favorable product mix, and better prices, than expected for Ford to maintain its forecast for full-year operating profits against higher costs. The company’s ability to maintain its guidance also shows that automakers have no problem with demand, he says.
Michaeli isn’t sure if other automakers are in the same situation as Ford in terms of problems with rising costs and parts shortages. But Spak isn’t too worried. “We would not be quick to extrapolate Ford’s issues to others [auto makers],” the analyst wrote in a report Monday. “Supply is clearly still weak, but different issues affect different automakers at different times.”
Both analysts are bullish on the Ford news, but neither is a bull on the stock. Spak rates Ford shares at Hold, with a $15 price target. Michaeli rates shares as Hold, with a target of $16.
Ford stock was down 4.9% at $14.20 in premarket trading, and futures were on the
Dow Jones industrial average
futures were around 0.4% and 0.3% respectively.
(GM) shares were down 1.8%.
( TSLA ) shares fell 0.4%.
Ford’s update didn’t really shake anyone on the Street. No one has upgraded or downgraded the stock, or changed their price target.
Overall, 40% of analysts covering shares of Ford stock rate Buy. That is below average. The average Buy-rating ratio for stocks in the
about 58%. The average analyst price target is nearly $17 a share.