Ford stock price falls 13% after supply-chain inflation bites profits

• Ford stock dropped as much as 13% on Tuesday. This was the worst day in 11 years.
• After warning investors about rising supply chain costs, the automaker’s decline led to its stock price plummeting.
• Ford is the latest to issue a profit alert following Fed-Ex’s announcement last week. 

FordStocks plunged up to 13% Tuesday following the announcement by the company Issued a $1 Billion Profit WarningInvestors for the current quarter.

Ford stated that an inflation-related rise in supplier costs is running $1 billion higher then the company expected. Ford also stated that it expected adjusted earnings before interest, taxes, to be between $1.4 billion-$1.7 billion. This is less than half of its second quarter result of $3.7 billion.

Also, the company stated that supply-chain issues mean that the company may have up to 45,000 vehicles in inventory. They will be unable to reach dealers at the end-of-the third quarter due to a lack of parts. Ford reiterated its adjusted EBIT guidance for full-year of $11.5 billion to 12.5 billion despite supply-chain problems.

However, that could change next month when Ford reports third-quarter earnings results. “The company intends to announce full third-quarter 2022 financial results – and provide more dimension about expectations for full-year performance – on Wednesday, Oct. 26,” Ford said. 

JPMorganAccording to Monday’s note, Ryan Brinkman, analyst at Ford, believes that the inflation problems could continue into 2023 and affect Ford’s earnings results.  

Brinkman stated that higher inflation-related supplier costs have a higher likelihood of recurring in contrast to chip shortages. This suggests some impact to 2023, for which we lower EBIT by $12.2 billion to $12.7 billion.

According to Ford, Tuesday’s market decline erased $7 billion and was Ford’s worst day for 11 years. FactSet data

Ford’s profit warning follows Fed-Ex issued a similar warning last WednesdayAccording to the company, a slowdown in global demand has severely affected its ability reach its previous financial forecasts that were made only a few months ago. 

Fed-Ex and Ford’s profit warnings could signal a slowdown in earnings that eventually leads to an economic recession. This is just as aggressive Fed-Ex interest rate increases begin to impact the wider economy. Fed Chairman Jerome Powell is expected. Tomorrow’s interest rate hike will be another 75 basis point.