Ford Sees $2.5 Billion Chip Shortage Cost, Slashes Outlook

(Bloomberg) -- Ford Motor Co. slashed its full-year forecast due to a debilitating computer-chip shortage that has crimped vehicle production, overshadowing first-quarter profit that handily beat Wall Street estimates.

A global shortfall of critically needed semiconductors has forced automakers to cut output, leaving thin inventories on dealer lots -- even as demand picked up amid the pandemic. Ford expects a $2.5 billion hit to earnings due to scarce chip supplies.

“We now expect the semiconductor shortage to get worse and bottom out in Q2, but to continue to put pressure on our operations in the second half of the year,” John Lawler, the company’s chief financial officer, said on a call with reporters.

Ford expects to lose about 50% of its planned second-quarter production, up from 17% in the first quarter. All told, Lawler said the chip shortage will likely cost the carmaker production of 1.1 million vehicles this year, up from a previous forecast of 200,000 to 400,000 vehicles.

That forced a dramatic cut in guidance for all of 2021. It now projects between $5.5 billion and $6.5 billion in adjusted earnings before interest and taxes for the year, down from a previous forecast for $8 billion to $9 billion.

Adjusted free cash flow for the full year is forecast to be $500 million to $1.5 billion, below the earlier projection for $3.5 billion to $4.5 billion.

Shares of the company fell as much as 4.3% in aftermarket trading. It closed regular trading down 0.5% to $12.43. The stock has gained about 41% so far this year.

“The second quarter will be the worst financial impact from the semiconductor shortage,” said David Whiston, an analyst with Morningstar. “In the first quarter they were able to put some Band-Aids on certain things and still make the vehicles, whereas in Q2 you really start to run out of options. You’re seeing a lot more plant closing announcements across the industry over the past few weeks.”

The automaker made the most of a sellers’ market in the first three months by posting earnings before interest and taxes of $4.8 billion on Wednesday, which was more than the $1.8 billion analysts predicted. Demand for the redesigned F-150 pickup and the new Bronco Sport SUV, led to adjusted earnings of 89 cents a share, compared with the 20-cent average of analysts’ estimates.

That resulted in “the most favorable supply/demand imbalance in a generation” and higher sticker prices, Adam Jonas, an analyst with Morgan Stanley, wrote in a note to investors last week.

Revenue amounted to $36.2 billion in the quarter, above the $31.25 billion analysts expected.

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