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Ford (F) Q3 Profits to Take a Hit Amid Inflationary Woes

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U.S. auto giant Ford (F - Free Report) issued a profit warning yesterday in view of commodity cost headwinds stemming from exacerbated supply chain snarls and inflationary pressure. The company expects its cost of auto parts to be $1 billion higher than expected in the third quarter of 2022. F anticipates third-quarter adjusted EBIT to be $1.4-$1.7 billion, implying a fall from $3.7 billion recorded in the last reported quarter and $3 million earned in third-quarter 2021. The weak forecast is primarily attributed to $1 billion in added supplier costs for the three months ending September due to inflation and component shortages.

The mounting semiconductor shortage has left the industry in disarray since mid-2021. Just when industry watchdogs and auto giants were predicting the chip deficit to gradually start easing out from mid-2022, the geopolitical conflict between Russia and Ukraine triggered the second round of global microchip shortage.

The persistent microchip shortage has been crippling the auto industry, as the auto part shortage is choking supplies, putting automakers on edge. Companies are also battling with high raw material prices. This supply-chain chaos is expected to linger through 2022 and into 2023 as well.

Amid the scarcity of parts and components, Ford’s inventory of half-completed vehicles remains elevated. The company anticipates having 40,000-45,000 partially-built vehicles in inventory at the end of the third quarter. The vehicles are mainly high-margin trucks and SUVs, which Ford expects to get completed and sell by the end of 2022.

While Ford expects its profits to take a hit in the ongoing quarter, it has reaffirmed its full-year adjusted EBIT forecast of $11.5-$12.5 billion. To achieve the same, the company has to deliver a robust fourth-quarter show, considering high supply-chain costs that will limit its margins in the third quarter.

Ford, currently carrying a Zacks Rank #2 (Buy), will release its third-quarter results on Oct 26. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Lately, many other major corporations across sectors have been issuing profit warnings or lowering their outlook, citing dwindling demand, stubborn supply-chain snafus and a gloomy economic environment.

Last week, the global shipping giant FedEx (FDX - Free Report) spooked the market, feeding into the long-feared narrative of an impending negative turn in the economy. The company reported dismal preliminary results for first-quarter fiscal 2023 (ended Aug 31, 2022), citing global volume softness. It lagged its targets as it faced fast-declining shipping demand in Asia and Europe.

The weakening demand for packages worsened in the final weeks of the quarter. FedEx expects business conditions to further deteriorate in the quarter ending November. As a result of the prevalent woes, FedEx withdrew its earnings guidance for fiscal 2023.

FDX currently carries a Zacks Rank #4 (Sell).

Online shopping emporium THG also slashed its full-year revenue and profit outlook, citing rising interest rates and energy costs, which have tightened customers’ purse strings. The UK e-commerce company envisions full-year sales growth of 10-15%, down from the prior mentioned 22-25%. Full-year adjusted EBITDA of £100-£130 million has been revised downward from the previously stated £161 million.

Industrial giant General Electric’s (GE - Free Report) CFO said at an investor conference last week that the company is witnessing continued supply-chain issues, which are likely to put pressure on its upcoming cash flows. Supply-chain disruptions, including labor and material shortages, and high logistics costs, are major challenges for GE.

GE currently carries a Zacks Rank #3 (Hold).

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