Ford Shares Drop Due to Supply Chain Issues and Profit Forecast Revision

Ford Motor Co. experienced a significant decline in its share price, which fell by 6.6 percent in premarket trading on Tuesday. This drop comes after the company adjusted its full-year profit forecast, citing challenges related to supplier disruptions and increased warranty costs. The situation has been exacerbated by a global price war prompted by overcapacity in the automotive market.

The automaker now anticipates that its adjusted earnings before interest and taxes (EBIT) for 2024 will be around $10 billion, down from an earlier estimate that ranged from $10 billion to $12 billion.

In a stark contrast, Ford's Detroit rival, General Motors, recently raised its profit expectations, indicating a different outlook in the industry.

For the third quarter, Ford, Toyota, and General Motors all recorded slower sales growth and face mounting pressure to lower vehicle prices. This dilemma arises as consumers, who are dealing with high inflation, increasingly choose less expensive vehicles.

The U.S. auto industry is predicted to encounter ongoing pricing difficulties throughout the rest of the year. Operations at Stellantis have also suffered from significant errors, leading them to address inflated inventories.

Analyst Tom Narayan from RBC Capital Markets expressed caution over a potential deflationary pricing cycle affecting the whole industry. He noted that Ford's revised forecast seemed anticipated and more realistic given the current circumstances.

While Ford's third-quarter profits exceeded expectations, the company's inventory levels exceeded its targeted range. By the end of the quarter, Ford had 91 days’ worth of gross stock and 68 days of dealer stock, according to CEO Jim Farley.

Bernstein analysts commented that there appeared to be a tactical shift in management's focus as they navigate the remainder of the year with an eye on the uncertain prospects for 2025.

Additionally, Ford warned about rising inflationary pressures in Turkey that could lead to increased prices for Transit vans sold in Europe. They also faced unexpectedly high warranty costs due to recalls and other repairs.

John Lawler, Ford's CFO, explained, "We've made some progress in reducing material costs, but unfortunately, warranty costs have risen."

So far, Ford shares have declined by 5.4 percent this year, reaching a price-to-earnings ratio of around 12, which is notably higher than GM's ratio of 5.62.

Ford, Stocks, Profit