Ford earns $20.2B in ’11; 4Q called ‘weak’

January 27, 2012
Ford earns $20.2B in ’11; 4Q called ‘weak’
By DAVID SHEPARDSON / Detroit News Washington Bureau
Ford Motor Co. reported $20.2 billion in net income for 2011 Friday — its best year since 1998 and second-best year ever – as its results were boosted by a one-time accounting gain.

This is Ford’s third consecutive annual profit, after losing more than $30 billion between 2005 and 2008.

But the company’s fourth quarter results didn’t meet expectations – with concerns raised about hedging and commodity costs. Ford also sounded some caution about 2012 – especially in Europe and South America – and lower than anticipated fourth quarter margins.

Ford’s stock fell sharply on the results, but recovered some of the losses in afternoon trading. The automaker was down 3.9 percent to $12.25, or $0.49, in very heavy trading.

Ford reported fourth quarter earnings of $0.20 –excluding the accounting change — below the Wall Street consensus of $0.27 a share.

“If you get over the small disappointment over the fourth quarter, this has been a good year,” said Ford chief financial officer Lewis Booth in an interview, noting the economic uncertainty in Europe and Asian natural disasters.

Excluding the one-time tax gains, it was still Ford’s best annual operating profit since it earned $11.5 billion in 1999, the company said.

Under a formula agreed to by the United Auto Workers as part of a new labor agreement, Ford’s earnings generated about $6,200 in annual profit sharing for its 41,600 hourly employees. Those workers received payments for the first half of the year, approximately $3,750 per person, in December. For the second half of 2011, the formula generated approximately $2,450 per employee, which is to be distributed in March. Profit sharing payments for individual employee will depend on how many hours each worked.

The company’s 2011 results were boosted by a one-time, noncash gain of $12.4 billion in prior year tax losses that had been set aside starting in 2006.

Ford’s pre-tax operating profit was $1.1 billion in the fourth quarter. Excluding the special item, Ford earned $8.8 billion in operating income in 2011.

“We delivered strong results for the full year as we continued to serve our customers around the world with best-in-class vehicles and make progress toward our mid-decade goals,” Ford President and CEO Alan Mulally said. “Despite the continued uncertainty in the external environment, the strength of our North American and Ford Credit operations allows us to continue to invest for future growth.”

Ford has now reported 10 consecutive profitable quarters. For the year, Ford earned $6.2 billion in operating profits in North America, up from $5.4 billion in 2010.

But the company’s results for 2012 didn’t impress some analysts. JPMorgan analyst Himanshu Patel called the fourth quarter results “weak.”

Morgan Stanley auto analyst Adam Jonas said in a note that Ford missed its forecasts for fourth quarter results. But he said Ford’s “2012 outlook for ‘about equal’ total company pretax profit with higher auto profit and auto margins is encouraging. 2012 may be shaping up to be a very good year for Ford.”

Standard & Poor’s Ratings said Ford’s results were “consistent with our assumptions incorporated in the fall 2011 upgrade.”

The automaker said it cut its debt from $19 billion to $13.1 billion by the end of 2011. Ford’s results were also boosted by $400 million by the sale of its Ford Russia operations to a joint venture.

Dearborn-based Ford said in 2012 it expects its market share to be “about equal” in the United States and Europe to 2011. Last year, it forecast market share gains in both the U.S. and Europe. Ford’s market share was up 0.1 percent to 16.5 percent in 2011 in the U.S. – but its retail share was flat at 14 percent.

Ford said it had a $190 million loss in Europe in the fourth quarter, up from a $51 million loss in same period a year ago. The company lost $27 million in Europe for all of 2011, compared with a $182 million profit in 2010.

The automaker said that it has challenges to address in Europe and South America. Uncertainties about the debts of major European countries have raised fears about a major economic slowdown in Europe.

The company’s pension plans, worldwide, are underfunded by $15.4 billion — up from $11.5 billion a year ago. In the U.S., its pension obligations are underfunded by $9.4 billion, up from $6.7 billion. Ford, which contributed $1.5 billion to its global pension plans in 2010, plans to make $3.5 billion in contributions to those plans this year, including $2 billion to its U.S. pension funds.

JPMorgan said Ford may be considering UAW pension buyouts — something that analysts have said General Motors Co. may announce later this year.

“Like GM, Ford is more actively discussing ‘de-risking’ steps for its pension, which include limiting liability growth, discretionary contributions … and ‘other actions under development,’ which may hint at UAW pension buyouts,” Patel said.

Booth said the automaker is considering unspecified “strategic actions” to address its pension underfunding and plans to fully fund them within “the next few years.”

He declined to answer whether Ford is considering pension buyouts.

GM chairman and CEO Dan Akerson also declined to say this week if the automaker is considering a UAW pension buyout.

Ford Motor Credit Co. earned $2.4 billion in profits in 2011, down from $3.1 billion in 2010, because fewer leases are being terminated.

Chrysler Group LLC is to report Feb. 1, followed by Detroit-based GM on Feb. 16. Chrysler is expected to report a full-year profit and GM has earned about $8 billion in the first nine months of the year.

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