Ford's Q4 Earnings Likely To Reflect Thaw in Frozen U.S. Supply Chains

Ford Motor Co. (F) likely will report Thursday that its fourth-quarter profit more than doubled from a year ago as the U.S. auto market slowly recovered from supply-chain woes that hampered production and left inventories unable to meet consumer demand.

Ford is expected to report net income of $2.5 billion, or 61 cents a share, on revenue of $43.1 billion, according to estimates from Visible Alpha. That would represent increases of 133% and 14%, respectively, from profit of $1.1 billion, or 26 cents per share, and revenue of $37.7 billion in the same period a year ago.

Source: Visible Alpha

Ford's report will come on the heels of Tuesday's fourth-quarter report from General Motors (GM), which recently reclaimed its spot as the top seller of cars in the U.S. from Toyota. GM's earnings and revenue easily beat analysts' consensus projections, and the company's 2023 earnings guidance also surpassed expectations.

GM's shares jumped as much 9% after Tuesday's report, buoying hopes that Ford may match the GM fourth-quarter upside earnings surprise. Ford's shares rose as much as 5% Tuesday, boosting their year-to-date gain to 17%. The company's stock rose 5% in the fourth quarter, concluding a year in which it plunged 42%. By comparison, the S&P 500's Automobiles & Components Industry Group Index fell 45% in the fourth quarter and dropped 61% for the full calendar year. This benchmark auto-sector index is a subset of the S&P 500 Consumer Discretionary Index (see chart below).

Supply Chains Improve, But Remain Problematic

U.S. automakers had to curtail production after the height of the pandemic as they struggled to obtain key parts amid global supply chain disruptions. In particular, many automakers had a tough time securing microchips necessary for certain electronic features. Inventories shrank along with production, and despite solid consumer demand, U.S. new vehicle sales fell 8% overall in 2022.

However, supply chain pressure slowly eased as 2022 progressed, allowing automakers to make headway in satisfying pent-up consumer demand. The consensus among analyst estimates compiled by Visible Alpha is that North American sales volume, accounting for half of Ford's business, increased to 654,000 in the fourth quarter—the highest in one quarter since before the pandemic. North American revenue likely reached an all-time high of $29.9 billion.

Worldwide, Ford probably sold about 1.2 million new vehicles in the fourth quarter, the third straight quarterly increase and up 10% from the same period a year ago. Revenue is expected to have risen year-on-year in each of the company's five global regions.

Still, industrywide demand continues outpacing the consistent availability of semiconductors, rare earth metals, and other components needed to boost production and replenish inventories, said Mark Barrott, head of consulting firm Plante Moran's Mobility Intelligence Center.

"The most noteworthy aspect of the situation is how automakers and suppliers plan to address the ongoing challenge," Barrott told Crane's Detroit Business. "Namely, by accelerating the establishment of their own production and supply chains—but only for certain elements."

In the meantime, Barrott said he expects automakers and suppliers to pursue partnerships and acquisitions throughout 2023 instead of relying on traditional supply contracts.