There is a silver lining to Ford’s ugly Q3 2022 update.

        Leon Neal/Getty Images
        Ford Motor said parts shortages and inflation will leave it with third-quarter operating profit well below consensus estimates.

However, Wall Street doesn’t seem that worried about Ford (ie: F) or its ilk. There are even some positives to take away from Ford’s stunning display. In Monday’s disclosure, Ford said it would not finish 40,000 to 45,000 of the higher-margin trucks and SUVs it had planned to produce until the end of the third quarter. These vehicles will be completed by the end of the year. Ford says the shortfall in production, combined with $1 billion in higher-than-expected costs, will result in quarterly operating profit of about $1.4 billion to $1.7 billion. Analysts had expected about $2.9 billion in operating profit before the update. Based on the midpoint of projections in management’s new guidance, Ford is about $1.4 billion short of operating profit. The magnitude of this failure is actually not that bad. RBC analyst Joseph Spak broke down the shortfall, writing that the unfinished vehicles cost the company about $600 million in operating profit, or about $14,000 each. (For Ford’s entire lineup, including lower-margin cars, operating profit per unit for vehicles sold in the first half of 2022 was about $3,000.) That $600 million, plus the $1 billion in higher costs, is $1.6 billion, higher than the $1.4 billion lost relative to the Wall Street consensus. The bottom line is that Ford may have beaten third-quarter expectations by about $200 million in a normal operating environment. This is only a theoretical possibility. But despite the disappointing third-quarter news, Ford stuck with an earlier forecast that full-year operating profit would be between $11.5 billion and $12.5 billion. Given its performance in the first three quarters of the year, Ford would need to earn about $4.5 billion in the fourth quarter to reach that number. That would be a huge result. Spak is forecasting about $3.1 billion, while the Wall Street consensus is about $3.2 billion in operating profit. Adding the $600 million in operating profit Spak estimates Ford lost due to unfinished vehicles to its fourth-quarter earnings forecast would bring its call to about $3.7 billion, while raising the consensus amount to 3.8 billion dollars. Ford expects to do much better than that, with a strong finish to the year. Citi analyst Itay Michaeli says that for Ford to maintain its full-year operating profit forecast in the face of higher costs, it will need to have a much more favorable product mix and better pricing than expected. The company’s ability to maintain its guidance also shows that automakers are not facing problems with demand, he says.
Michaeli isn’t sure if other automakers are in the same situation as Ford when it comes to problems with rising costs and parts shortages. But Spak isn’t too worried. “We would not rush to extend Ford’s issues to others [auto makers],” the analyst wrote in a report on Monday. “Clearly, supply is still volatile, but different issues affect different automakers at different times.” Both analysts have bullish views on the Ford news, but neither is a bull on the stock. Spak rates Ford stock at Hold, with a $15 price target. Michaeli also rates the stock Hold, with a target of $16. Ford shares fell 4.9% to $14.20 in premarket trading, while S&P 500 and Dow Jones Industrial Average futures fell about 0.4% and 0.3%, respectively. Shares of General Motors ( GM ) fell 1.8%. Shares of Tesla ( TSLA ) fell 0.4%. Ford’s update hasn’t really shaken anyone on the road. No one has upgraded or downgraded the stock or changed their price target. Overall, 40% of analysts covering shares of Ford stock are buy. This is below average. The average market-to-market ratio for S&P 500 stocks is about 58%. The average analyst price target is nearly $17 per share.