Ford earnings hurt by chip shortage

by Chris Isidore, CNN Business

Ford reported an unexpected drop in its fourth quarter earnings, rather than the improved results expected by Wall Street, but the company promised it sees a better 2022 ahead.

The company reported income excluding special items of $1.1 billion, down from $1.4 billion on that same basis a year ago. Analysts surveyed by Refinitiv had forecast earnings to increase to $1.7 billion.

Revenue at the company edged up 5% in the quarter to $37.7 billion, even as the number of cars it sold globally declined 11% to 1.1 million. The continuing shortage of chips and supply chain issues have forced most major automakers across the industry to temporarily close their factories and limit production during the quarter, causing tight inventories of new vehicles available to customers.

That, in turn, has pushed car prices to record highs, and reduced the need for automakers to offer incentives to attract buyers.

Analysts had believed that Ford would be able to match the results of some of its rivals — such as General Motors, which reported record earnings Tuesday — and increase profitability despite the supply chain issues.

The company said it expects its full-year operating earnings this year to be up 15% to 25% as some areas in its global operations that lost money in the quarter, such as Europe and China, return to profitability.

“We’ve also made progress outside of North America, and this is very important,” said CEO Jim Farley in comments to investors. “Ford has been a one-legged stool for too long.”

And company officials insisted that they were pleased with the results, saying they had done a good job overcoming the headwinds they faced in the quarter.

“While we remain in the teeth of the Covid crisis and semiconductor shortages, our overall business is still in great shape,” said Farley.

The company said that it expects the supply of chips and other supply chain issues to improve throughout the year, although the current quarter has been hit by some continued Covid-related supply issues.

“We had supply chain constraints hitting us this quarter,” said CFO John Lawler. “Omicron disrupted several of our key suppliers. They couldn’t produce. They couldn’t get us products.”

But Lawler said the strong demand for new vehicles should put Ford in a good position once the supply issues have alleviated.

“Demand was strong [in the fourth quarter]. If we could have met the demand and the production without the disruptions, you would have seen a stronger quarter,” he said. “And so as we go into 2022, as we see those supply constraints ease…[there is] going to be much more of a tailwind versus some of the headwinds we’re seeing.”

One piece of good news for Ford comes from its early $500 million investment in electric truck maker Rivian, which had a very successful initial public offering during the quarter.

That resulted in Ford reporting a one-time gain of $8.2 billion on its Rivian holdings in the quarter, and $9.1 billion for the full year. That potential windfall, on paper at least, along with other special items lifted Ford’s net income for the quarter to $12.3 billion, and for the full-year to $17.9 billion.

Still, Rivian shares have struggled so far this year, which generally has been a bad one for EV stocks. Ford’s holdings in Rivian, valued at $10.6 billion at the end of 2021, had fallen to $6.3 billion at the close of trading Wednesday.

Shares of Ford fell about 4% in after-hours trading after releasing its quarterly report.

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