Ford’s shares tumble after high costs pressure profit outlook

Ford Motor Co.’s shares fell after the company warned that earnings this year will be at the low end of its forecast as the carmaker struggles to bring down high warranty costs.

Adjusted earnings before interest and taxes this year will be about $10 billion, down from a previous outlook for as much as $12 billion, the company said Monday. Analysts had expected $10.6 billion.

The tempered outlook highlights the widening gap between the Dearborn, Michigan-based carmaker and competitors including cross-town rival General Motors Co. Tesla Inc. shares soared last week after reporting a blowout third quarter, while GM raised its full-year profit forecast for the third time this year.

“We need to move faster, bottom line, and warranty needs to be a big part of that,” Ford Chief Financial Officer John Lawler said on a conference call with analysts. “We need to accelerate our pace to outrun what our competitors are doing.”

Ford’s shares sank as much as 10% as of 9:37 a.m. in New York on Tuesday, the largest intraday drop since July 25. The stock had declined 6.7% this year through Monday’s close.

“2024 has been a somewhat frustrating year for Ford investors,” JPMorgan analyst Ryan Brinkman said in a client note. High warranty expenses and other costs have “prevented the company from generating even stronger profits on account of positive market factors” such as vehicle pricing in the US, he said.

Third-quarter adjusted profit was 49 cents a share, matching analyst estimates. The quarterly results and updated outlook were “underwhelming,” Vital Knowledge analyst Adam Crisafulli said in a note to clients, “especially compared to the strong reports from GM and Tesla.”

In July, Ford shares plunged after the automaker reported a surge in warranty costs that caused it to fall short of profit estimates. Chief Executive Officer Jim Farley has taken drastic action to remedy the issue, even forgoing near-term profit by holding thousands of new models in parking lots around Detroit for extra quality checks.

During a call with reporters, Lawler characterized the quarter as “solid,” pointing to revenue growing 5% to $46.2 billion. But he said the company continues to struggle with getting costs under control, especially the expense of repairing quality problems on its vehicles.

“Our warranty costs were a slight improvement” in the third quarter, Lawler said. “But it’s not as big as we would like to see and we’re going to continue to work for that to be a much bigger number.”

The ongoing cost challenges blunted signs of progress elsewhere.

The Ford Pro commercial business, which has been a solid source of profit, earned $1.8 billion before interest and taxes, up from $1.65 billion a year earlier. Sales of F-Series pickups, which Ford sells to many fleet buyers, rose 4.2% in the quarter to almost 200,000 vehicles.

Ford Blue, the automaker’s traditional business that includes internal combustion engine vehicles and gas-electric hybrids, earned $1.6 billion before interest and taxes, less than the $1.72 billion it made last year when it was hit by a strike by the United Auto Workers. Ford now expects the unit to earn $5 billion before interest and taxes this year, down from as much as $6.5 billion in its prior forecast.

Supply disruptions from the recent hurricanes that hit the Southeastern US, along with higher manufacturing costs and adverse exchange rates, contributed to this year’s decline, the company said.

Ford’s plug-in vehicle business Model e lost $1.2 billion and faced pricing pressure in the third quarter. Ford is scaling back its EV investments as mainstream buyers balk at pricey battery-powered models and fret about a spotty charging infrastructure. In August, Farley pulled the plug on an electric three-row sport utility vehicle the company had in the works.

“There’s been a lot of frustration by investors,” David Whiston, a Morningstar Inc. analyst who rates Ford the equivalent of a buy, said before the results were released. “The stock has languished for many, many years.”

— By Keith Naughton (Bloomberg)