Ford Misses, Revenues Up 6.5% - Analyst Blog


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Ford Motor Co. ( F ) posted a 34% fall in profit to $797 million or 20 cents per share (before special items) in the fourth quarter of 2011 from $1.20 billion or 30 cents per share (before special items) in the same quarter of 2010. With this, the automaker has missed the Zacks Consensus Estimate by 7 cents per share.

However, including the favorable impacts of valuation allowance and sale of Ford's Russian operations to the newly created Ford-Sollers joint venture, which began operations on October 1, 2011, Ford's profit jumped to $13.6 billion or $3.40 per share during the quarter from $190 million or 5 cents per share in the fourth quarter of 2010. The improvement was driven by strong performance in North America and Ford Credit that more than offset the repercussions from other parts of the world.

Total revenue during the quarter grew 6.5% to $34.6 billion. It was higher than the Zacks Consensus Estimate of $31.8 billion.

For full year 2011, Ford reported a 19% decline in profit to $6.12 billion or $1.51 per share (before special items) from $7.58 billion or $1.91 per share in 2010. However, the company's profit failed to meet the Zacks Consensus Estimate of $1.84 per share.

However, excluding the favorable impact of valuation allowance, profit in the year stupendously increased to $20.2 billion or $4.94 per share from $6.56 billion or $1.66 per share a year ago.

Revenues in the year increased 13% to $136.3 billion. It was higher than the Zacks Consensus Estimate of $128.2 billion.

Ford has decided to make profit sharing payments to approximately 41,600 eligible U.S. hourly employees under the United Auto Workers (UAW) union agreement. The company's North American pre-tax profits of $6.2 billion will generate approximately $6,200 per eligible employee on a full-year basis.

The company already distributed $3,750 per employee in December 2011 for the first-half 2011 results. It will distribute $2,450 per employee for the second half of 2011 in March this year.

Ford Automotive                    

The Ford Automotive segment registered a 7.6% rise in revenues to $32.6 billion during the quarter. However, pre-tax operating profit declined 21% to $586 million from $741 million in the fourth quarter of 2010.

The fall in profit was attributable to higher costs, including higher commodity costs, rise in compensation costs in North America related to the new UAW agreement (including the one-time ratification bonus), and unfavorable exchange rates. These were partially offset by favorable net pricing and volume/mix.

For the full year, revenues increased 15% to $128.2 billion. Pre-tax operating profit was $6.33 billion, an improvement of $1.04 billion from $5.30 billion in 2010.

Financial Services

The Financial Services segment reported a 9% dip in revenues to $2 billion. Pre-tax operating profit fell 11.5% to $506 million compared with $572 million a year ago. The decrease in profit was attributable to fewer leases being terminated and the related vehicles sold at a gain.

For the full year, Ford Credit saw a 16.5% fall in revenues to $8.1 billion. Pre-tax operating profit was $2.43 billion compared with $3.00 billion a year ago.

Financial Position

Ford had cash and marketable securities of $22.9 billion as of December 31, 2011, an improvement from $20.5 billion as of December 31, 2010. Total Automotive liquidity at the year-end was $32.4 billion, including all available credit lines. Total Automotive debt stood at $13.1 billion as of December 31, 2011 compared with $19.1 billion as of December 31, 2010.

In 2011, the company's Automotive operating-related cash flow was $5.6 billion, an increase from $4.4 billion in the prior year. Capital expenditures rose to $4.3 billion from $3.9 billion in 2010.

2012 Outlook

For full year 2012, Ford expects industry volume (including medium and heavy trucks) of 13.5 million units-14.5 million units in the U.S. and 14.0 million units-15.0 million units in the 19 European markets covered by the automaker.

The company expects its 2012 market share in the U.S. and Europe to be almost same as 2011. Its market share in 2011 was 16.5% in the U.S. and 8.3% in Europe.

During the year, Ford anticipates Automotive pre-tax operating profit to improve from 2011. Ford Credit is expected to be solidly profitable, although at a lower level compared with 2011. Total company pre-tax operating profit is expected to be almost as same as in 2011.

Automotive structural costs are expected to increase by less than $2 billion in order to support higher volumes, new product launches and global growth plans. Although the company expects an increase in commodity costs, Automotive operating margin is expected to increase from 2011.

The automaker expects capital expenditures between $5.5 billion and $6 billion in 2012 as it continues to invest in product and growth plans.

Our Take

We appreciate Ford's product plans and debt reduction strategy. The benefits from these strategies have already been reflected in the company's results. However, we are concerned about the company's higher commodity costs. We are also disappointed with the company's Financial Services segment results.

As a result, the company retains a Zacks #3 Rank on its stock, which translated 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).

Ford's archrival, General Motors Company ( GM ) is expected to release its fourth quarter results on February 20, 2012.

FORD MOTOR CO ( F ): Free Stock Analysis Report
GENERAL MOTORS ( GM ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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