Despite strong year, profit-sharing, Ford stock tumbles

January 28, 2011

Despite strong year, profit-sharing, Ford stock tumbles

The Detroit News

Dearborn— Ford Motor Co. said today 2010 was its most profitable year in more than a decade, and it will give 40,600 hourly workers profit-sharing checks of about $5,000 each in March.

But due to a fourth quarter that didn’t meet Wall Street’s expectations, Ford stock took a big drop. In mid-afternoon trading, Ford was down $2.23 a share – about 12 percent – to $16.50. It started the day at $17.79.

“2010 was an extraordinary year with our results exceeding our expectations,” said Ford CEO Alan Mulally. The automaker is “accelerating our transition from fixing the business fundamentals to delivering profitable growth for all. We are investing in an unprecedented amount of products, technology and growth in all regions of the world.”

Net income for 2010 totaled $6.6 billion — Ford’s second consecutive year in the black after three years of losses.

Bonuses traditionally are paid in mid-March and individual amounts can vary based on wage rates and hours worked. Last year, hourly workers received $450 bonuses.

“It’s a delight to be paying profit sharing,” said Chief Financial Officer Lewis Booth. “It reflects our underlying strength.”

Salaried workers, including about 20,000 in the United States, are expected to get bonuses too, but those figures were not disclosed today.

The 2010 earnings report and profit-sharing announcements cap a year of continued good news from the Dearborn automaker, which has been boosted by its growing reputation among consumers and a strong lineup of new models. Ford continues to gain market share and increase average transaction prices on its new cars and trucks.

Its $6.6 billion net income for 2010 represents Ford’s best full-year result since 1999 and is a $3.8 billion increase from 2009; last year’s operating profit of $8.3 billion was the highest since 2000.

The October through December period was the automaker’s seventh consecutive quarter in which Ford reported a net profit.

Net income in the fourth quarter was $190 million, or five cents per share, down $696 million from a year ago — in part due to a one-time charge of $960 million to convert some debt into equity.

But the fourth-quarter pre-tax operating profit of $1.3 billion or 30 cents per share fell short of Wall Street expectations of 48 cents per share.

“It’s your first miss versus consensus in two years,” said analyst Adam Jonas of Morgan Stanley during a call with investors that showed a disconnect between the guidance Ford thought it had provided at the end of the third quarter and Wall Street’s expectations.

Ford, the only one of Detroit’s Big Three automakers to avoid bankruptcy and a federal bailout, continued to reduce its debt in the fourth quarter. It made a $2.5 billion payment against a 2013 credit revolver and paid another $800 million against a secured term loan in addition to previously announced moves. Total debt reduction for the quarter totaled $7.3 billion.

In its efforts to return to investment grade, Ford pared its debt $14.5 billion or 43 percent in 2010, which will save it more than $1 billion a year in interest costs. The new debt level is $19.1 billion. Mulally would not speculate on how long it will take to return to investment grade – a status it lost in 2005 – and resume paying dividends.

With $20.5 billion in cash on hand, Ford ended the year with $1.4 billion in positive cash. The last time the automaker was cash positive was the second quarter of 2008.

With an additional $7.4 billion in unfunded liquidity, the automaker’s total liquidity is $27.9 billion.

Booth said analysts may not have factored in the higher structural costs associated with key vehicle launches, including the Ford Focus in global markets and in North America the new Explorer and new engines for the F-150 pickup.

Structural costs were up about $1.2 billion in 2010 and commodity prices were about $1 billion higher, Booth said.

Both will continue to be a factor in 2011 with more key launches to come and continued pressure on prices for raw materials, Mulally said. But he stressed that “our product plans remain unchanged.”

The automaker also increased its advertising budget in the fourth quarter to promote the new vehicles and invested in additional engineering for future products, he said.

Booth said the automaker did not cut back on product development during the worst years. As a result, “2011 will be another astonishing year for new products in North America.”Some of the fourth-quarter drop-off was seasonal; Booth said the run-rate coming out of the quarter should not be seen as a precursor of what is to come in 2011.

Ford, he said, is in transition mode.

“We have fixed the fundamentals of the business and are in profitable growth mode. It was a good finish to the year and we will continue to work the balance sheet,” Booth said.

Mulally said the outlook for this year is U.S. sales in the 13 million to 13.5 million vehicle range and Europe should be between 14.5 million and 15.5 million. Market share and profits should equal or surpass 2010 levels, he said, and the automaker will spend $5 billion to $5.5 billion in capital expenditures.

“Next year we will increase profitability and free cash flow,” Mulally said.

Another miss was Europe. Ford expected to reverse losses in the final quarter there, but failed to do so. “We provided guidance that Europe would be profitable, and we didn’t achieve that,” Booth said.

The CFO said the European market grew even more competitive in the final months of the year, the market contracted and Ford chose not to chase share with increased incentive spending.

North American operations generated a pre-tax profit of $670 million in the fourth quarter, a $59 million increase from a year ago. For the entire year, North America generated a $5.4 billion operating profit, up more than $6 billion.

Ford workers learned of their profit sharing as they arrived for work this morning.

At a Ford plant in Livonia, Cortez Holt of Detroit was disappointed that the average $5,000 bonus isn’t greater, in light of the sacrifices that union members made in recent years to help keep the industry going.

“Really, the $5,000 is nothing toward what they’ve already taken,” said Holt, who figures he lost $18,000 in recent years. “I ain’t gonna turn nothing down, but a lot of us would like to have the $18,000 back.”

Holt said his plant managers are “beautiful, but it seems like the ‘glass house’ (Ford’s Dearborn headquarters) has forgotten us.”

Ford was the first of the Detroit automakers to announce its fourth-quarter and full-year earnings. Chrysler Group LLC has scheduled its announcement for Monday; General Motors Co. has not said when it will report its earnings.

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