Bloomberg News

Ford Misses Estimates While Posting Biggest Profit Since ‘98

January 31, 2012

(Updates with shares in the first and fifth paragraph.)

Jan. 27 (Bloomberg) -- Ford Motor Co., fueled by a one-time tax gain, posted $20.2 billion in net income for 2011, the most since 1998, while overseas operations dragged down fourth- quarter profits, leading shares to slide before normal trading.

Ford reported its 11th consecutive profitable quarter, with net income of $13.6 billion, or $3.40 cents a share, compared with $190 million, or 5 cents, a year earlier. Excluding one- time costs, the profit was 20 cents a share, trailing the 25- cent average estimate of 15 analysts surveyed by Bloomberg.

It was the third straight annual profit for Chief Executive Officer Alan Mulally, 66, who has improved quality and expanded the lineup with fuel-efficient models like the Fiesta subcompact. Net income was boosted by a non-cash gain of $12.4 billion from eliminating a valuation allowance against deferred tax benefits, Ford said. Profit excluding some items for 2011 was $8.8 billion or $1.51 a share, which fell short of the $1.99 average of 14 analysts’ estimates.

“It was another good solid year, but the gains weren’t quite as dramatic as in previous years,” said Efraim Levy, an analyst for S&P Capital IQ, who has a “buy” rating on Ford. “It will get tougher going forward.”

Ford fell 5.3 percent to $12.12 at 7:16 a.m. in New York. The shares are up 19 percent this year through yesterday after falling 36 percent last year.

‘Level of Confidence’

Ford removed the valuation allowance, created in 2006 as it began reporting operating losses, because it expects to be profitable in the future and to use the tax benefits, according to a U.S. regulatory filing last year. Ford lost $30.1 billion from 2006 to 2008, as truck and sport-utility vehicle sales collapsed and the economy fell into the worst recession since the Great Depression.

“They’re telling the world that they’ve attained a level of confidence in their ability to generate substantial amounts of income for the foreseeable future,” said Robert Willens, a corporate tax specialist and president of Robert Willens LLC of New York. “It’s quite a positive, forceful statement on their ability to prosper going forward.”

In the fourth quarter, the Dearborn, Michigan-based automaker was hamstrung by a weakening European market and flooding in Thailand that wiped out profits in its Asian operations, Chief Financial Officer Lewis Booth told analysts Jan. 10.

Ford said its fourth-quarter automotive operating margin fell to 2.2 percent from 3 percent a year earlier.

In Europe, Ford said its pretax operating loss widened to $190 million from a loss of $51 million a year earlier. In Asia- Pacific and Africa, Ford reported a pretax operating loss of $83 million, down from a $23 million profit last year.

North America

In North America, where Ford generates most of its sales and profits, the second-largest U.S. automaker reported pretax operating income of $889 million, up from $670 million last year. Ford’s U.S. sales rose 11 percent last year and it gained market share for the third consecutive year for the first time since 1970.

“Ford is still a North American company,” said Brian Johnson, an analyst with Barclays Capital. “In 2012, we’re looking for the U.S. sales rate to recover, their market share to remain solid and their pricing to remain solid with products like the Escape and the Fusion refreshed” with new styling.

Production Plans

Fourth-quarter sales rose 6.5 percent to $34.6 billion as Ford boosted North American production by 14 percent during the period to 674,000 cars and trucks. The average estimate for total fourth-quarter revenue was $33.5 billion, according to the average of four estimates.

Ford reiterated it will produce 675,000 cars and trucks in North America during the first quarter, up 18,000 vehicles from last year. Ford said today it will cut production in South America, Europe and Asia Pacific Africa this quarter.

Globally, Ford said it plans to produce 1.4 million cars and trucks in the first quarter, down 51,000 vehicles from last year.

For the year, Ford’s revenue rose 13 percent to $136.3 billion, compared with an average forecast of $134.7 billion from five analysts surveyed.

Consumers paid an average of $32,028 for the company’s models last year, up 25 percent from 2002 and the highest price Ford vehicles have ever commanded, according to online auto researcher Edmunds.com.

Automotive Debt Rises

Automotive debt, which excludes Ford Motor Credit, was $13.1 billion at year’s end, an increase from $12.7 billion on Sept. 30, the company said.

The company will contribute $3.5 billion to its global pension plans, including $2 billion to the U.S. plan.

Ford said it will pay $2,450 to each of its 41,600 U.S. hourly workers for second-half 2011 profits.

Ford has more debt than rivals because it borrowed $23 billion in late 2006, after Mulally arrived from Boeing Co. and before credit markets froze. That enabled the automaker to avoid the bailouts and bankruptcies that befell the predecessors of General Motors Co. and Chrysler Group LLC in 2009.

“Ford’s doing everything right except getting their stock price up,” said Gary Bradshaw, a fund manager at Dallas-based Hodges Capital Management, which owns about 250,000 Ford shares. “They’ve got their costs down, good products, good engineering and good leadership. Ford can do surprisingly well this year.”

--Editors: Bill Koenig, Jamie Butters

To contact the reporter on this story: Keith Naughton in Detroit at knaughton3@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net


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