Automobile giant Ford has turned a $2 billion loss from last year’s corresponding quarter into a pretax profit of $4.8 billion for this year’s first quarter.
For shareholders, this equates to 89 cents a share, while a survey of analysts by FactSet had forecast 22 cents a share. The figure represents a revenue rise of 6% to $36.2 billion and included a $900 million non-cash gain from the company’s investment in electric truck manufacturer Rivian Automotive LLC.
The worldwide chip shortage, which has hit the automotive sector hardest, is expected to affect this year’s overall profit figures. Ford announced that the shortage will cut pretax profits by $2.5 billion this year. This is at the high end of the forecast of $1 billion to $2.5 billion that they estimated in February.
Whilst it expects to see improvement in chip supplies by June, Ford admitted that second-quarter production figures would be cut by at least half. Chief Finance Officer for the company, John Lawler, said that a fire in the factory of a Japanese semiconductor supplier had further delayed chip supply during a conference call with reporters.
“We now expect semiconductor shortages to get worse and bottom out in the second quarter,” he said.
Semiconductor production has been hit by a perfect storm of surging demand and falling output over the past year. Automotive manufacturers have been forced to alter and suspend production schedules as the situation continues.
Ford Chief Executive Jim Farley took over the job in October last year and immediately put steps in place to accelerate a “turnaround plan” for the company. Mr. Farley promised to squeeze costs and fix operational problems. The operational problems he is referring to included Ford’s rising warranty costs and some mediocre high-profile vehicle launches.
Current supply problems are the only blemish in otherwise favorable results in the company’s efforts as it addresses these issues. As a comparison, Ford’s warranty costs fell by $400 million when compared to the same quarter last year.
Ford’s most profitable model is the F-150 pickup truck and the company managed to keep the production line rolling for the vehicle throughout the first quarter. However, Ford has now canceled production of the vehicle for much of April and said that because of chip shortages production isn’t likely to resume until mid-May at the earliest.
John Lawler said during his conference call that Ford has set aside about 22,000 vehicles that were manufactured without semiconductor chips. These will be equipped once the supply situation has eased.
The research firm AutoForecast Solutions has estimated that the chip shortage has cut Ford’s production of its F-150 by at least 35,000 units so far this year. With the bulk of the cuts coming in the latter half of March into April. This equates to roughly 10% of expected F-150 production at normal manufacturing levels.
Operating with such a troubled backdrop makes Ford’s profit figures even more remarkable.