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The Ratings Game: Ford’s ‘massive’ first-quarter beat overshadowed by chip-shortage headwinds

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Ford Motor Co. stock on Thursday fell the most in more than 10 months after the company had its best quarter in years but spooked investors with calling for a big hit and more production cuts from the ongoing chip shortage.

Ford
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-10.18%

shares fell more than 10% in midday trading, on pace for their lowest close since Feb. 3 and largest one-day percentage increase since June 11, 2020.

Ford late Wednesday reported a “massive” first-quarter beat, with adjusted per-share earnings of 89 cents, four times the Wall Street expectation, on sales that also came in above forecast and benefited from tight investors and increased demand for the company’s new and redesigned vehicles.

“Ford put up very strong (first-quarter) results, but also a confusing 2021 updated guide as Street may have under-appreciated magnitude” of chip shortage through the rest of the year, Joseph Spak, analyst at RBC Capital, said in a note.

Ford guided for full-year 2021 adjusted EBIT to be between $5.5 billion and $6.5 billion, from a previous outlook of between $8 billion and $9 billion, including a $2.5 billion hit from the chip shortage, at the top of a previously estimated impact between $1 billion and $2.5 billion earlier this year. It also called for further production cuts.

Ford’s new outlook “is ALL headwinds, and NO tailwinds,” especially amid an once-in-a-decade vehicle and price mix, Chris McNally at Evercore ISI said in his note. Moreover, it appears that while the first quarter got all the benefits from the sales mix, second quarter will bear “all the brunt of the tailwinds,” he said.

Adam Jonas with Morgan Stanley echoed some of that concern, saying that Ford’s first quarter was “far ‘too good’ to extrapolate while the remainder of the year is ‘too challenged’ to extrapolate.”

The year 2021 will likely go down as an “oddball” time for the auto industry due to the confluence of consumer strength, inventory tightness, and “extremely disruptive” supply-chain issues, he said.

Analyst Michael Ward at Benchmark was more blunt: Ford’s guidance “makes no sense.” First-quarter earnings were $2 billion higher than expected, despite a 17% reduction in production related to chip supply.

“What doesn’t seem to make sense, in our opinion, is the $4 billion reduction in company guidance for the remainder of the year. Either the chip impact is much greater than the $2.5 billion estimate by the company or structural earnings, especially in North America, are much lower than previous assumptions,” they said.

Ford stock is up 28% this year, outperforming the S&P 500 index’s SPX12% advance in the same period. It has doubled in the last 12 months, compared with gains of around 43% for the S&P. Ford shares are off nearly 70% from its record closing high of $36.53 in 1999.

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