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Ford’s Big Earnings Warning Is Really Good News. Just Ask Wall Street.

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There is a silver lining in Ford’s ugly update for the third quarter of 2022.

Leon Neal/Getty Images


Ford Motor

said a lack of parts and inflation would leave it with a third- quarter operating profit way below consensus estimates.

Yet Wall Street doesn’t seem all that worried about


Ford

(ticker: F) or its peers. There are even a few positives to take away from Ford’s surprising report.

In Monday’s disclosure, Ford said it won’t finish 40,000 to 45,000 higher-margin trucks and SUVs it had planned to produce by the end of the third quarter. Those vehicles will be completed by the end of the year.

Ford says that shortfall in output, combined with $1 billion in higher-than-expected costs, will result in a quarterly operating profit of about $1.4 billion to $1.7 billion. Analysts were projecting about $2.9 billion in operating profit before the update. Based on the midpoint of the forecasts in management’s new guidance, Ford is missing about $1.4 billion in operating profit.

The magnitude of that miss actually isn’t all 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 roughly $14,000 each. (For Ford’s entire lineup, including lower-margin cars, the per-unit operating profit for 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 miss relative to the Wall Street consensus. The implication is that Ford might have beaten expectations for the third quarter by about $200 million in a normal operating environment.

That is only a theoretical possibility. Still, despite the disappointing news about the third quarter, Ford stuck with an earlier forecast that operating profit for the full year will be between $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 hit that number.

That would be a huge result. Spak is projecting about $3.1 billion, while the consensus call on Wall Street is for about $3.2 billion in operating earnings.

Adding the $600 million in operating profit Spak estimates Ford missed out on because of the unfinished vehicles to his forecast for fourth-quarter earnings would bring his call to about $3.7 billion, while it would lift 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 that for Ford to maintain its forecast for full-year operating profits in the face of higher costs, it will have to have a far more favorable mix of products, and better prices, than he had expected. The company’s ability to maintain its guidance also shows auto makers aren’t facing any problems with demand, he says.

Michaeli isn’t sure if other auto makers are in the same situation as Ford in terms of problems with rising costs and shortages of parts. But Spak isn’t too worried. “We wouldn’t be quick to extrapolate Ford’s issues to other [auto makers],” wrote the analyst in a Monday report. “Clearly, supply is still choppy, but different issues impact different automakers at different times.”

Both analysts have optimistic takes on Ford’s news, but neither is a bull on the stock. Spak rates Ford shares at Hold, with a target of $15 for the price. Michaeli rates shares Hold as well, with a target of $16.

Ford stock was down 4.9% at $14.20 in premarket trading, while futures on the


S&P 500

and

Dow Jones Industrial Average
futures were off about 0.4% and 0.3%, respectively.


General Motors

(GM) shares were down 1.8%.


Tesla

(TSLA) shares slipped 0.4%.

The Ford update hasn’t really shaken anyone on the Street. No one has upgraded or downgraded the stock, or changed their target for the price.

Overall, 40% of analysts covering Ford stock rate shares Buy. That is below average. The average Buy-rating ratio for stocks in the

S&P 500
is about 58%. The average analyst price target is almost $17 a share.

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