Ford’s fundamentals remain strong, despite recession concerns, production is holding back

Ford’s fundamentals remain strong, despite recession concerns, production is holding back | Daily News Byte

bemaaddeepak September 28, 2022

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The economy faces an increased risk of a recession, Ford ( F ) CEO Jim Farley told CNBC on Tuesday, a week after the automaker warned investors of $1 billion in unexpected costs of suppliers and parts shortages in the third quarter. But the Club is sticking with Ford because we believe it has what it takes to navigate macroeconomic headwinds and supply disruptions. “The risk is elevated for a moderate recession certainly from all the indicators we’ve seen,” Farley said. “For us as a business we see labor inflation, many input costs are increasing. We’re doing our best to overcome them…and we have a big job to do on cost specific to Ford anyways,” he added. The chief executive of Club holding Ford also discussed improvements to its chip shortage, though he warned the company could face supply chain disruptions until next year. While Ford shares are undoubtedly under pressure – the stock is down more than 40% year-to-date – the Investing Club takes a long-term view of our investment in Ford and is steadfast in what appear to be short-term obstacles. Jim Cramer said Wednesday he won’t sell Ford here. “I find this a little absurd, frankly, because there have been problems the whole way around, but what matters is demand. If you sell Ford here, you’re selling it at a 5% yield,” he added. Earlier in the week, Jim said investors who don’t own any Ford shares should buy “aggressively” to take advantage of the yield. Ford said last week it expected third-quarter adjusted earnings before interest and taxes (EBIT) to be between $1.4 billion and $1.7 billion, below the $2.99 billion estimate that analysts had predicted, though that it reaffirmed a full-year operating profit forecast of $11.5 billion to $12.5 billion. The automaker is working on restructuring the company’s costs to stay ahead of the competition to produce electric vehicles, an area expected to increase operating margins in the future. Supply chain pressure Last week, Ford shares suffered their worst day in more than 11 years, when the company announced ongoing parts shortages. In its earnings preview, Ford said it expects to have 40,000 to 45,000 unfinished vehicles by the end of the third quarter that need to be sold off the line. “I think it’s going to take a long time — it’s going to be easy next year, and demand is going to have to come down for us in order for the demand side to solve this problem,” Farley said. Consumer demand remained strong for Ford’s popular product line, compounding the company’s production challenges. “We have a multiyear order bank now for our commercial vehicles,” the CEO said. Because of Ford’s revised production outlook, Citi lowered its target price for Ford shares to $13 from $16. In a research note on Tuesday, the bank said it was revising its revised EBIT estimate for the full year, to $11.5 billion from a previous estimate of $11.8 billion, citing a difficult macroeconomic backdrop, international exposure and higher headwind costs. But the bank still sees the automaker’s fundamentals as “macro resilient.” Ford, which has said it is committed to increasing production, recently announced a $700 million manufacturing investment in Kentucky that is expected to create 500 manufacturing jobs to support new vehicle production. Chip shortage Despite ongoing supply chain challenges, Farley said the automaker’s chip shortage is improving. In fact, the shortage of parts in question is not related to the chips, which leads us to believe that the automaker has more control over production than investors realize, and could make up for missed sales in those next quarter. “We see the chips situation getting better. It’s not enough to supply the needs of the industry or what customers want to buy, but it’s getting better,” Farley said. “It’s really different now. In the last quarter we started seeing supply chain issues on non-chip issues.” (Jim Cramer’s Charitable Trust is long F. See here for a full list of stocks.) — Correction: This story has been updated to reflect that Ford shares one day last week suffered their worst session in for more than 11 years. As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling stock in his charitable trust’s portfolio. If Jim talks about a stock on CNBC TV, he waits 72 hours after issuing a trade alert before executing the trade. INVESTING CLUB INFORMATION ABOVE IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, INCLUDING OUR DISCLAIMER. NO FIDUCIARY OBLIGATION OR DUTY IS CREATED, OR CREATED, BY YOUR ACCEPTANCE OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFITS ARE GUARANTEED.

Ford CEO Jim Farley poses next to a model of the all-new Ford F-150 Lightning electric pickup truck at the Ford Rouge Electric Vehicle Center in Dearborn, Michigan, April 26, 2022.

Rebecca Cook | Reuters

The economy faces a higher risk of recession, Ford (F) CEO Jim Farley told CNBC on Tuesday, a week after the automaker warned investors of $1 billion in unexpected supplier costs and parts shortages in the third quarter. But the Club is sticking with Ford because we believe it has what it takes to navigate macroeconomic headwinds and supply disruptions.

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