Inflation, supply issues threaten 2022 profits

DETROIT — There’s growing concern among Wall Street analysts that higher costs and supply chain disruptions will put pressure on 2022 earnings for General Motors and Ford Motor — even more than initially expected.

Ahead of the Detroit automakers’ first-quarter earnings reports this week, several analysts cited such problems, including inflation and parts disruptions caused by the coronavirus pandemic and the war in Ukraine, as concerns for the companies and broader automotive industry.

JPMorgan analyst Ryan Brinkman on Monday trimmed first-quarter estimates for both GM and Ford for the second time.

“Commodity prices have since stabilized but remain elevated and volatile and suppliers are surely requesting higher prices from both GM and Ford to help compensate for an increasing array of non-commodity supply chain costs,” he said.

JPMorgan now expects first-quarter earnings per share for GM of $1.52, down from $1.58 and below the $1.68 average of forecasts compiled by Refinitiv. It lowered its forecast for Ford to 41 cents a share, down from 52 cents but slightly higher than the 38 cents per share expected by Refinitiv consensus estimates.

GM reports first-quarter results after the market close Tuesday, followed by Ford on Wednesday.

Evercore ISI in a note to investors last week said it expects Ford to cut its 2022 outlook due to the growing number of problems facing the company. It cited the company’s exposure to supply chain problems in Europe due to the war and the increased cost of aluminum used in its top-selling F-Series pickups, among other issues.

In early March, Ford reaffirmed its expectations of a pretax profit between $11.5 billion and $12.5 billion for the year. However, supply chain problems have only gotten more complex since then, according to analysts.

GM previously forecast a pretax profit of $13 billion to $15 billion for 2022, but Evercore ISI said it’s “not quite clear” whether the company would suffer “a small potential cut” to its top-end guidance. GM has far less exposure to Europe than Ford and other automakers but continues to face supply chain problems in China and North America.

BofA Securities analyst John Murphy said, in general, initial guidance by many automotive companies is “now too optimistic” given the litany of problems facing the auto industry.

“Given the ongoing global semiconductor shortage, incremental Covid-19 outbreaks and subsequent shutdowns in Asia, heightened geopolitical tension because of the Ukraine-invasion, and a plethora of other supply chain disruptions, general sentiment across the industry (corporates, investors, etc.) remains very cautious,” he wrote last week in an investor note.

Europe-based BofA analyst Horst Schneider on Tuesday downgraded Stellantis from “buy” to “neutral” due to its exposure to Europe and supply chain problems.

Stellantis, which was formed by the merger of Fiat Chrysler and France-based Groupe PSA in January 2021, is scheduled to release its first-quarter shipments and revenue on May 5.

— CNBC’s Michael Bloom contributed to this report.