Ford Motor expects a big fourth quarter, bouncing back from supply-chain-induced challenges experienced in the third quarter. Wall Street isn’t so sure things will turn as well as the company expects.
Wednesday, Ford (ticker: F) reported third-quarter operating profit of $1.8 billion, down from $3.7 reported in the second quarter. Ford didn’t finish some 40,000 vehicles due to lack of parts. The company expects to ship those in the fourth quarter, but it also said higher costs were part of the reason earnings declined sequentially.
Ford believes it will earn roughly $3.7 billion in the fourth quarter. That would hit Ford’s lowered full-year operating profit guidance for $11.5 billion, down from a range midpoint of $12 billion. Wall Street sounds skeptical.
“We still do not view its revised-down $11.5 [billion profit] guidance for the year as fully de-risked, in light of seemingly much larger volume, inflation and credit headwinds than previously contemplated,” wrote Deutsche Bank analyst Emmanuel Rosner in a Thursday report.
Ford paid its suppliers an extra $1 billion to help offset rising labor and commodity costs. Rising prices coming from the supply base will be a theme for Ford, and all other auto makers, in the fourth quarter and beyond.
Ford Credit is facing its own headwinds, too. Interest rates are up, and used-vehicle prices are falling from all-time highs. That has earnings at Ford’s financial unit a little lower than in recent quarter.
Rosner says business execution has to be “perfect” for Ford to hit its full-year operating profit mark. He rates Ford stock at Hold, and has a $13 price target.
Benchmark analyst Mike Ward sounds more sanguine, and focused on cash flow in his Thursday report. “Ford ended 3Q with a net cash position at the auto operations, excluding Rivian Automotive (RIVN) stake, of $10.9 billion compared with $6.9 billion at the end of June, and $5.5 billion at year-end 2021,” wrote Ward.
(Net cash simply means cash minus debt.)
Ford’s balance sheet is in good shape, putting Ford is a strong position to compete with auto makers, including Tesla (TSLA) in the coming couple of years, according to Ward. He rates Ford stock at Buy with a $23 price target.
RBC analyst Joseph Spak rates Ford stock at Hold. His price target is the lowest of the three analyst at $12. He cut it by $1 after Ford’s quarterly update.
Spak is a little more worried that vehicle mix will be a new headwind for the company. Auto production has been constrained globally for years because of a lack of semiconductors. Auto companies, including Ford, have been making only their most-profitable products while allocating their limited chip supply. As the supply-chain snarls untangle, new-vehicles inventories will rise. That will pressure new-car pricing. It will also mean more, lower-end, cars get built.
It all means Spak has a “more cautious base view on 2023.” His $12 price target works out to only 6.5 times estimated 2023 consensus earnings estimates of $1.86 a share. Spak’s 2023 earnings estimate, however, is much lower at 53 cents a share.
For the fourth quarter, Spak expects operating profit of $3.6 billion. That’s close to what Ford expects. In this instance, the rest of the Street is lower. The current consensus fourth-quarter operating-profit estimate is $3.3 billion.
The spread between bullish and bearish estimates is wide and, frankly, a little all over the place. The Street really isn’t sure what’s coming next for Ford or the auto industry in 2023. Either recession will hit earnings and pressure shares or things won’t turn on that bad.