Ford lowers its 2018 earnings guidance on extra costs driven by US tariffs on imported aluminium and steel

The 10 per cent tariffs that were imposed by U.S. President Trump’s administration on imports of aluminium and steel from July have already caused the prices to rise in the end –user segment. Automotive and packaging companies are constantly expressing concern over higher prices eating up on profits.

The developments are having a substantial impact on Ford Motor Co.’s business. Jim Farley, Ford’s president of global markets said this while emphasising the fact that the company does intend to pass higher costs on to consumers.

“The escalation of steel and aluminum prices is really significant,” Jim Farley, Ford’s president of global markets, said after a factory ceremony near Detroit to commemorate building the 10 millionth Mustang muscle car. “It’s a significant headwind for us. It’s something that puts pressure on our own costs.”

In the beginning of the year, Ford warned that the rising costs for raw materials like steel and aluminium, coupled with unfavourable exchange rates, would add $1.6 billion to its overall costs in the current year.

Ford’s Q2 earnings plunged by almost 50 per cent and the company also lowered its 2018 earnings projections. Ford missed Wall Street Journal estimates and lowered its 2018 earnings guidance to an adjusted earnings per share of between $1.30 and $1.50, from between $1.45 and $1.70 forecasted earlier. 

According to Ford’s CFO Bob Shanks the company's commodity costs were about $300 million higher from the same period of 2017, half of which was driven by the U.S. tariffs on steel and aluminium. He added that the tariffs would eat up about $600 million in profit this year. It generated US$38.92 billion in total revenue, down from the US$39.85 billion during the Q2 2017.

Farley concluded that the company is not passing along the higher costs to its customers in the form of higher prices and will concentrate on ways to deal with it and absorb as a company.