Ford Motor (F) reaffirmed its 2022 earnings outlook late Wednesday after posting mostly in-line earnings and revenue for the first quarter. Ford stock fell sharply Thursday morning.
The auto giant based its outlook partly on expectations for better vehicle pricing and mix. But a Wall Street analyst flagged concerns around underlying assumptions.
In a note to clients Thursday, Deutsche Bank analyst Emmanuel Rosner noted that management assumes another $ 2 billion- $ 2.5 billion benefit from volume, pricing and mix, offsetting higher inflationary pressures. That’s on top priority assumptions for $ 6 billion in “market factor tail winds, which means its 2022 guidance now incorporates $ 8 billion- $ 9 billion of year-over-year benefit from volume / price / mix,” Rosner said.
“We continue to worry these increases could be difficult to achieve amid record-high vehicle prices, weakening consumer, and rising interest rates,” he added. Rosner has a hold recommendation on Ford shares and left his price target unchanged at $ 17.
Ford expects improved chip supplies in the second half of 2022, according to an earnings release late Wednesday. As a result, it sees vehicle wholesale volumes increasing 10% -15% for the full year.
In Q1, the lingering chip shortage held down vehicle production and shipments in January and February, Ford said late Wednesday. But manufacturing rates “significantly improved” during March and Ford entered the current quarter with what CEO Jim Farley called an “extremely healthy” order bank.
As supplies improve, Ford added Tuesday that its plans to scale and launch new EVs remain on track. On Tuesday, the auto giant launched the F-150 Lightning electric truck.
On Tuesday, archrival General Motors (GM), too, signaled the global chip shortage is easing. GM reiterated guidance for 25% -30% volume growth in 2022.
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Estimates: Analysts polled by FactSet expected Ford earnings to dive 59% to 37 cents per share. They saw total revenue, including autos and financial services, falling 5% to $ 34.533 billion.
Ford has previously disclosed that its new vehicle sales in the US slumped 17% in Q1. Overall US sales fell around 16%, held back by low supplies rather than weak demand. The chip shortage and other supply disruptions hurt vehicle production and sales.
Offsetting weak sales, average transaction prices for vehicles have been on the rise.
Results: Ford earnings fell 46% year over year to 38 cents excluding various items. Revenue fell 5% to $ 34.5 billion.
The results benefited from increased pricing and disciplined incentive spending, Ford said in Wednesday’s earnings release. But those were “more than offset” by higher commodity prices, lower volumes, and a lower mix of pickup trucks and large SUVs.
Outlook: Ford reaffirmed guidance for 2022 adjusted EBIT of $ 11.5 billion- $ 12.5 billion, an increase of 15% -25% over 2021. Analysts polled by FactSet forecast Ford earnings of $ 1.92 per share in all of 2022, rising 21% year over year.
“A strong demand and pricing environment for existing and new vehicles” supports maintaining the guidance, CFO John Lawler said in Tuesday’s release. The outlook is also based on expectations for improved chip supplies.
However, Ford now sees material headwinds of $ 4 billion in 2022 vs. $ 1.5 billion- $ 2 billion earlier.
Ford stock fell 5.4% to 14.04 Thursday morning, after trading higher overnight. Shares rose 0.7% to 14.81 in Wednesday’s stock market trading, but from the lowest levels since October. Ford stock has been stuck below its 50-day moving average for three months. The relative strength line for Ford stock has fallen sharply after a strong rally in the final quarter of 2021.
GM stock fell 3% to its lowest level since 2020. Shares rose 1.6% Wednesday, snapping a string of down days. Management said it sees auto chip supplies improving, on a GM earnings call late Tuesday.
Tesla (TSLA) slumped nearly 6% Thursday morning. Shares edged higher Wednesday after tumbling 12% Tuesday following CEO Elon Musk’s Twitter deal.
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On March 2, Ford announced a new business, Ford Motor e, which will exclusively focus on new EVs. Ford stock jumped 8% on the news to create distinct businesses for fossil-fuel cars and EVs, but the gains did not last.
Ford’s F-150 Lightning truck, seen as a future growth driver, launched Tuesday. Upcoming electric pickup rivals include GM’s Silverado and Tesla’s Cybertruck.
Both GM and Ford are shifting away from gas and diesel cars to electric vehicles, or EVs. At the same time, the Russia-Ukraine war is squeezing supplies of parts and metals like wiring harnesses and nickel – the latter a key material for EV batteries.
Meanwhile, the Russia-Ukraine war and a Covid resurgence in China pose new headwinds to automakers. In April, General Motors and Ford both shut down production at Michigan plants again due to supply disruptions. Ford tied the move to the pandemic-fueled chip shortage, which has hampered vehicle production and weighed on vehicle sales.
Find Aparna Narayanan on Twitter at @IBD_Aparna.
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