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Ford Narrows Annual Profit Forecast to Low End of Range (Bloomberg)

Published October 27, 2022


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The article below is sourced from Bloomberg Wire Service. The views and opinions expressed in this story are those of the Bloomberg Wire Service and do not necessarily reflect the official policy or position of NADA.

Ford Motor Co. narrowed its profit forecast for the year, saying 2022 earnings will come in at the low range of earlier estimates as the automaker deals with parts shortages and higher payments to suppliers.

The company, which announced third-quarter results Wednesday, expects to report $11.5 billion in adjusted earnings before interest and taxes for 2022. It had previously said profit could be as high as $12.5 billion.

Analysts ratcheted down earnings expectations for the quarter last month after Ford issued a profit warning, blaming inflation for an extra $1 billion in supplier costs during the period and saying it had to park 40,000 to 45,000 high-margin vehicles in holding lots while they awaited missing parts.

The problems were especially acute in North America and pulled down Ford’s profit margin by half to 5% in the region, its biggest and most profitable market. Ford said Wednesday those vehicles will be completed and delivered to dealers in the final months of the year, and that margins will rebound to double digits this quarter.

“The results could have been better, but a true bright spot in all of this is our adjusted free cash flow,” John Lawler, chief financial officer, said on a call with reporters. “Our balance sheet is in very good shape.”

The results contrast with those reported by General Motors Co. and Tesla Inc. GM beat Wall Street’s profit estimates, benefiting from strong sales of Cadillac SUVs and its largest trucks. Tesla also exceeding earnings estimates.

Third Quarter

Ford’s revenue for the third quarter increased 10% to $39.4 billion, beating Wall Street’s projection of $36.4 billion. Ford’s earnings came to 30 cents a share excluding some items, as the company tackled those parts shortages and supplier costs. Wall Street expected 31 cents. 

Along with the earnings, Dearborn, Michigan-based Ford announced plans to buy back up to 35 million of its shares, worth almost $450 million at current prices. It also said full-year free cash flow will be $9.5 billion to $10 billion.

The company also said Wednesday it’s taking a $2.7 billion charge to account for the shutdown of Argo AI, an autonomous-driving venture with Volkswagen AG. 

Read more: Ford, VW-backed autonomous driving firm to close

Chief Executive Officer Jim Farley is engineering a wrenching transformation at Ford as he attempts to take on Tesla Inc. with a $50 billion investment in electric vehicles and a plan to be producing 2 million EVs a year by the end of 2026.

To get there, Ford’s CEO plans to slash costs by $3 billion, which included eliminating 3,000 salaried jobs in August with the possibility of more to come. Ford shares are down 38% this year amid the tumult and fears of an impending recession.

They were down less than 1% to $12.71 at 5:14 p.m. New York time in extended trading after the earnings were announced.

Lawler said Ford sees a “mild or moderate recession” next year, but is much better prepared to weather a downturn because inventories are low and incentives are down.

Adjusted Profit

In the third quarter, adjusted earnings before interest and taxes fell to $1.8 billion, compared with the $1.82 billion analysts expected. 

The company’s profit tumbled in North America, with earnings before interest and taxes falling to $1.31 billion from $2.42 billion last year. Sales rose 16%, led by hot new models like the electric F-150 Lightning and the Maverick compact pickup. 

In Europe, Ford posted a $204 million profit before interest and taxes, compared with a $52 million loss in the same period last year. Parts shortages eased and shipments rose 23% from the second quarter, Ford said.

In China, Ford had a $193 million loss before interest and taxes in the third quarter, wider than last year, as the company continued to invest there in electric vehicles. Ford said its sales in China fell 12% during the quarter to about 133,000 vehicles.

(Updates with profit margin in fourth paragraph, regional details.)

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