Ford Motor Co.
) has disappointed by posting a sharp 20% fall in profits to $1.6
billion in the first quarter of the year from $2.0 billion in the
same quarter of 2011. Including special items, the decline in
profits were much more pronounced. It was 45% to $1.4 billion from
$2.6 billion a year ago.
On per share basis, profits ebbed 17% to 39 cents from 47 cents
in the first quarter of 2011. Nevertheless, it was higher than the
Zacks Consensus Estimate of 35 cents.
The automaker has attributed the decrease in profits to higher
tax expense, lower operating results and higher charges emanating
from buyouts of hourly workers in the U.S. as part of its United
Auto Workers (UAW) agreement in 2011.
The company's profits drastically fell in all its operating
regions, except North America. In fact, it recorded a loss in
Europe and Asia Pacific Africa compared with a profit in the
comparable quarter of 2011.
Total revenue in the quarter slipped 2% to $32.4 billion, barely
surpassing the Zacks Consensus Estimate of $32.0 billion. The fall
in revenues was attributable to lower wholesale volumes in Europe
and Asia, partially offset by higher volumes in North America and
Revenues in the segment dipped 2% to $30.5 billion on lower unit
sales. The wholesale volumes declined 45,000 units to 1.4 million
units during the quarter. Pre-tax operating profit sagged 14% to
$1.8 billion on the back of higher costs and unfavorable exchange
rates, partially offset by higher net pricing and lower net
, revenues increased 4% to $18.6 billion on higher volumes. Pre-tax
operating profit rose 17% to its 12-year high at $2.1 billion from
$1.8 billion a year ago driven by increases in industry volume and
net pricing and decreases in contribution costs and compensation.
These were partially offset by higher structural costs. Unit sales
grew 6% to 651,000 vehicles during the quarter.
, revenues scaled up 4% to $2.4 billion. However, pre-tax operating
profit in the region slashed 74% to $54 million from $210 million
in the first quarter of 2011. The decrease reflected higher costs
(mainly contribution costs) and unfavorable exchange rates. Unit
sales rose 3.5% to 118,000 vehicles during the quarter.
, revenues shrank 17% to $7.2 billion. The region had an operating
loss of $149 million in sharp contrast to a profit of $293 million
in the prior year. The drastic fall was attributable to fall in
industry volumes, lower demand for parts and accessories,
adjustments of dealer stocks to lower industry demand and increases
in contribution and pension-related cost, partially offset by
reductions in other structural costs. Unit sales slid 14% to
372,000 vehicles during the quarter.
Asia-Pacific & Africa
, revenues escalated 9.5% to $2.3 billion. However, the region had
a pre-tax operating loss of $95 million compared with a profit of
$33 million in the year-earlier quarter due to higher costs
associated with continued investment in the region and
slower-than-planned launch of the new global Ranger pickup truck
from the company's plants in Thailand and South Africa.
- consisting primarily of interest and financing-related costs -
showed a narrower pre-tax loss of $106 million in the quarter
compared with $249 million in the prior year-quarter. The
improvement was attributable to lower net interest expense related
to the company's debt reduction measures in 2011 and non-recurrence
of market valuation losses associated with its investment in
Japan's Mazda Motor.
Ford's Financial Services segment also depicted gloomy results
during the quarter. The segment reported a pre-tax operating profit
of $456 million, which is a sharp 35% decline from $706 million in
the previous year-quarter.
registered a steep 37% drop in pre-tax operating profit to $452
million from $713 million a year ago. The decline was a fall out of
fewer lease terminations, which resulted in fewer vehicles sold at
Ford had cash and marketable securities of $23.1 billion as of
March 31, 2012, up from $21.4 billion as of March 31, 2011.
Automotive gross cash was $23.0 billion as of March 31, 2012
compared with $21.3 billion as of March 31, 2011.
However, the company improved its debt position during the
quarter. Its Automotive debt has been reduced by $2.9 billion to
$13.7 billion as of March 31, 2012 from $16.6 billion as of March
In the quarter, the company's Automotive operating-related cash
flow deteriorated significantly to $900 million from $2.2 billion
in the first quarter of 2011. Meanwhile, capital expenditures
enhanced to $1.1 billion from $900 million in the prior-year
For full year 2012, Ford upgraded its industry volume (including
medium and heavy trucks) guidance for the U.S. while toning down
the same for Europe. The company expects industry volume in the
range of 14.5 million-15.0 million vehicles for the U.S. compared
with the earlier guidance of 13.5 million units-14.5 million units;
and about 14 million units for the 19 European markets covered by
the automaker compared with the prior guidance of 14.0 million
units-15.0 million units.
Ford anticipates pre-tax operating profit to be about the same
as in 2011. The company expects pre-tax profit in the second half
of the year to be slightly higher than the first half, driven by
product launches and capacity adjustments.
The company expects Automotive pre-tax operating profit to
improve from 2011 driven by improvements in Europe, South America
and Asia Pacific Africa. It foresees North America and South
America to be solidly profitable in 2012. It also expects Asia
Pacific Africa to be profitable during the year, despite reporting
a loss in the quarter under study. However, it continues to
anticipate Europe to incur a loss between $500 million and $600
million for the full year.
Ford reiterated its guidance of Automotive structural costs to
increase by less than $2 billion in 2012 in order to support higher
volumes, new product launches and global growth plans. Despite an
expected increase in commodity costs, operating margin in the
Automotive segment is anticipated to improve from 2011.
The automaker continues to expect capital expenditures between
$5.5 billion and $6.0 billion in 2012 as it pursues investment
under product and growth plans.
We appreciate Ford's product plans and debt reduction strategy.
However, we are concerned about the economic weakness in Europe as
well as higher structural and commodity costs.
As a result, the company retains a Zacks #3 Rank on its stock,
which translates to a short-term (1 to 3 months) rating of Hold.
Consequently, we reiterate our long-term recommendation of Neutral
for the long term (more than 6 months).
General Motors Company
) is expected to release its first quarter results on May 3,
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