Ford stock sinks on inflation, supply constraints warning

Shares of Ford Motor Co.'s stock plummeted 12% Tuesday as investors reacted to the automaker's warning that the effects of inflationary pressures and supply constraints would show up in third-quarter earnings.

The company's stock closed at $13.09 per share Tuesday. The loss represented the largest one-day hit Ford's stock has taken in more than a decade, Bloomberg reported.

The stock was down on a pre-earnings update Ford released Monday after market's close. The company warned that "inflation-related supplier costs" would end up running about $1 billion more than originally expected in the July-September period. Ford expects adjusted earnings before interest and taxes for the quarter to be in the range of $1.4 billion and $1.7 billion — down from $3.7 billion in the second quarter and $3 billion in the third quarter of 2021, and well below Wall Street analysts' consensus expectation.

The automaker also said it expects to have a "higher-than-planned" number of vehicles — between 40,000 and 45,000 — assembled but awaiting parts at the end of the third quarter due to supply shortages. The vehicles awaiting parts "disproportionately" include high-margin trucks and SUVs. 

Still, Ford reaffirmed its full-year guidance of adjusted EBIT of between $11.5 billion and $12.5 billion.

The update prompted some investment analysts to lower their Q3 expectations for Ford — and appeared to serve as a surprise to some regarding the slow pace of recovery from supply-chain issues that have snarled autos and other sectors.

Shares of Ford tumbled amid a broader U.S. stock market slide Tuesday. The S&P 500, Nasdaq and Dow Jones indices all were down roughly 1%. General Motors Co.'s stock closed down nearly 6%. Tesla Inc.'s stock, however, was down only 0.1%.

Meanwhile, the Federal Reserve is again poised to raise its benchmark interest rate Wednesday as it continues its bid to tamp down high inflation.

Ford will report third-quarter results on Oct. 26.

Analysts react

The expected hit to Ford's third-quarter financial performance "is another gut punch to the Ford story as the Street's confidence is wearing thin on stumble after stumble," Dan Ives, senior equity analyst at Wedbush Securities, said in an email. "While many of the inflationary factors are out of Ford's control there is a worry management does not have their arms around the situation and fears are (for) further number cuts into 2023.

"This is all weighing on the stock in a jittery backdrop with investor frustration building around the Ford story despite all the strides (CEO Jim) Farley has made of late."

Meanwhile, analysts at Morgan Stanley wrote in a note Tuesday that Ford's guidance of between $1.4 billion and $1.7 billion in adjusted EBIT in Q3 is half of what they had estimated.

Ford's update, according to analyst Adam Jonas, reflects the reality that the auto industry is "not yet out of the woods" in terms of the supply-chain issues it has battled for more than a year. Morgan Stanley has an equal-weight rating on Ford's stock at a price target of $14 per share.

Deutsche Bank had expected Ford's Q3 adjusted EBIT to come in at $2.93 billion, according to a research note released Tuesday.

"We are surprised by the announcement from Ford, since the company appeared to have weathered (the semiconductor chip) shortage better than GM, and in fact benefitted in Q2 from finishing (work-in-progress) earlier than expected," analyst Emmanuel Rosner wrote. "It appears that across the industry, chip and components shortages may be improving at a slower pace than anticipated."

Ford executives reported during second-quarter earnings that the company had managed to whittle down its inventory of vehicles awaiting parts to 18,000 from 53,000 at the start of the quarter.

Meanwhile, investment research firm CFRA Research on Tuesday maintained its "buy" opinion on Ford's stock as well as its 12-month price target of $18 per share.

"The significance of the announcement is that many investors had started to believe these problems were in the rearview mirror with U.S. inventories on the rebound," analyst Garrett Nelson wrote in a research note. "Ironically, Ford may have become a victim of its own success in that its recent U.S. sales growth has outperformed peers by a wide margin. In Q3, Ford's production apparently wasn't able to keep pace with demand."

jgrzelewski@detroitnews.com

Twitter: @JGrzelewski