Shares of Ford (NYSE:F) are trading 8% lower on Tuesday after the Michigan-based car giant said it is expecting to face an additional $1 billion in costs in the fiscal third quarter as a result of sky-high inflation and supply-chain constraints.
The car-maker said supply-chain issues have led to significant part shortages, affecting between 40,000 and 45,000 vehicles, particularly high-margin trucks and SUVs. Ford added it expects to make the deliveries to the affected dealers in the fourth quarter and estimates adjusted earnings before interest and taxes (EBIT) in the range of $11.5 billion to $11.5 billion for fiscal 2022.
Ford’s rival General Motors (NYSE:GM) faced similar problems this year. In July, the car-maker warned investors that it expects to see a hole in its Q2 earnings due to supply-chain constraints. The company said it had around 95,000 vehicles in its inventory that were manufactured but lacked certain parts.
For the third quarter, Ford expects adjusted EBIT to be between $1.4 billion and $1.7 billion, adding it will provide mode detail regarding its full-year performance expectations when it publishes Q3 results next month.
Supply Chain Continue To Hurt Car-Makers
Car manufacturers have been grappling with supply-chain constraints since the coronavirus outbreak two years ago. The pandemic resulted in the closures of factories all around the world, though demand remained robust in spite of part shortages.
In its previous earnings report for the second quarter, Ford said its adjusted operating income more than tripled compared to the same period the previous year to $3.7 billion. The car-maker reported Q2 adjusted earnings per share (EPS) of 68 cents, up from 12 cents in the same period last year, and topping consensus estimates of 45 cents.
Automotive revenue came in at $37.91 billion in the second quarter, well above the Q2 2021 revenue of $24.13 billion, and also above the consensus projection of $34.32 billion. Net income stood at $667 million, up from the $561 million in the same period a year ago.
This week’s profit warning comes after Ford announced last month it plans to reduce its global workforce by around 3,000 to cut costs as a part of the car-maker’s restructuring efforts led by Chief Executive Jim Farley.
Ford said 2,000 job cuts were aimed at salaried positions, while the remaining 1,000 affected agency jobs across the U.S., Canada and India.
“Building this future requires changing and reshaping virtually all aspects of the way we have operated for more than a century. It requires focus, clarity and speed. And, as we have discussed in recent months, it means redeploying resources and addressing our cost structure, which is uncompetitive versus traditional and new competitors,” Ford said in a message to employees.
Ford’s attempts to reduce costs follow similar efforts by other companies trying to cut expenses and headcount as global economies face recession risks due to four-decade-high inflation and aggressive interest rate hikes by the Federal Reserve and other central banks.
The Fed is expected to deliver another major interest rate hike at its policy meeting tomorrow after the latest consumer price index data showed that U.S. inflation in August came higher than expected. On an annual basis, inflation stood at 8.3% last month, compared with the consensus estimates of 8%.
Ford’s job cuts came just a couple of weeks after Farley said the company has “too many people in certain places.” The cuts are affecting both Ford’s business units, including its electric and internal-combustion-engine divisions.
As of the end of 2021, Ford said it had 186,769 employees globally, 48.7% of which were based in the U.S. The car-maker has around 31,000 salaried employees in North America.
The U.S. car manufacturer has been undergoing a major restructuring process since Farley took the top job in October 2020. The initiative, called Ford+, involves plans to reduce $3 billion in structural costs by 2026, while making hefty investments into the expansion of its electric and commercial vehicle units.
Shares of Ford are now trading at the lowest levels in two months. Morgan Stanley analyst Adam Jonas said today that he sees a buying opportunity in Ford stock below $14 per share.
Summary
Ford stock price trades sharply lower on Tuesday after the car company said it expects to see its Q3 profits get hit by $1 billion in additional supply-chain-induced costs. The profit warning prompted Ford shares to trade at the lowest levels since July.