FedEx has found a friend in the camp of big, ugly third-quarter financial pre-announcements.
The auto giant Ford warned of as much as $1 billion in profits coming in late Monday in the form of higher parts costs, with the company blaming supplier inflation. Ford now sees adjusted operating profit for the third quarter between $1.4 billion and $1.7 billion, well below Wall Street’s estimates of $3 billion.
Somewhat oddly, in light of the big warning, Ford reiterated its outlook for full-year operating profit from $11.5 billion to $12.5 billion.
Ford shares fell on the news, with shares of General Motors and Tesla also ducking in sympathy. Ford’s ticker page was the most visited on the Yahoo Finance platform until early morning.
The mood on Wall Street is that Ford’s warning is generally a shock given the relatively optimistic comments about demand and the bottom line as second-quarter earnings hit in late July. Now The Street is struggling to lower the company’s earnings and valuation estimates.
“Vehicles in transit will be seen as transient, but surprising inflation is always a concern,” Evercore ISI analyst Chris McNally said in a note to customers, adding that he sees Ford’s stock trading fall to about $13 off the quarterly decline. .
Itay Michaeli of Citi also seemed stunned by Ford’s warning. Here’s a quick look at his research note.
Ford’s stock is likely to be in the penalty area anytime soon, Michaeli suggests.
“While the Q3 guide-down doesn’t affect the outlook for the fiscal year, the surprising $1 billion + now increased reliance on a strong Q4 will likely weigh on equities.”
But Michaeli doesn’t think the demand for Ford’s vehicles has declined.
“Ford’s Q3 guide-down confirms continued supply chain shortages (Ford mentioned general supply chain problems for us) and inflationary pressures, but doesn’t seem to reflect a demand problem. In fact, it seems to suggest a better price/mix than before. That said However, our initial feeling is that the Q3-Q4 hike will lean many toward the lower end of Ford’s $11.5-$12.5 billion budget for fiscal year 2022 (Citi $11.8 billion).”
What Does Ford’s Warning To Compete With General Motors Mean?
“The exact read-through to GM is not clear at this time, as it depends on the extent to which Ford’s guidance is industry-related or company-specific. If we consider the three factors mentioned above: (1) On the 40-45,000 units, last quarter GM was dealing with a similar issue, while Ford didn’t, so it’s possible Ford’s Q3 issue is company specific, although it’s unclear at this point. Anyway, we don’t consider this to be the largest area of direct discussion since supply chain risks have been known.(2) Out of the $1 billion in Q3 incremental costs, this will probably get the most attention as it really comes as a surprise as we understand reasonable lead times for supplier negotiations are and take into account taking into account inflation from previous years ’22 Ford’s advice of $3 billion.
“If GM gets a similar headwind, like Ford, it could reduce/eliminate any H2 upside that comes from a strong price/mix, while also raising questions about what exactly caused these seemingly sudden headwinds. In fact, if we end up facing a similar headwind, reading this to GM could benefit arguably better execution or at least more conservatism on the cost outlook.
Farley previously explained why he is splitting the company internally: one company will focus on making electric vehicles and the other on producing gas-powered vehicles.
“I have no idea why other people wouldn’t do it,” Farley told Yahoo Finance’s Pras Subramanian. “I literally saw the company struggle; I saw a transmission engineer trying to learn about batteries, [the transformation] would just take too much time, we don’t have time, we are way behind. So to catch up and succeed, we have to specialize. … I have no idea how we would make this switch if we didn’t specialize.”
Brian Sozzi is a great editor and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and further LinkedIn.
Click here for the latest trending stock prices from the Yahoo Finance platform
Click here for the latest stock market news and in-depth analysis, including events that move stocks
Read the latest financial and business news from Yahoo Finance
Download the Yahoo Finance app for: Apple or android
Follow Yahoo Finance on Twitter, facebook, Instagram, flip board, LinkedInand YouTube