Analyst Note
| David Whiston, CFA, CPA, CFE |Ford announced after the market closed on Sept.19 that its third-quarter results to be reported on Oct. 26 will suffer from supply chain problems causing about 40,000-45,000 vehicles to be partially built but not wholesaled to dealers. We calculate an EBIT and EPS hit of about $337.5 million and $0.07 for the third quarter, assuming an average selling price of $50,000, 45,000 units lost, and a 15% EBIT margin. Ford calls unfinished vehicles awaiting parts such as chips (Ford did not say what parts are in short supply) “vehicles on wheels” and it’s been an ongoing problem due to the chip shortage as well as likely from COVID-19 absences in supplier plants and possibly from the war in Ukraine. GM had 95,000 partially built vehicles at June 30 while Ford had 18,000 of these vehicles. The third-quarter vehicles on wheels are high-margin light truck models including pickups, but Ford expects them to be completed and wholesaled in the fourth quarter, so it is not changing its full-year adjusted EBIT guidance including Ford Credit of $11.5 billion to $12.5 billion. Ford said its third-quarter adjusted EBIT will be between $1.4 billion and $1.7 billion, which is well below the Refinitiv consensus of about $2.8 billion, and also said it sees inflation-related supplier costs about $1 billion higher in the quarter than expected. We assume these costs are pricing adjustments to suppliers for high raw materials costs.