Promising notes behind Ford’s disappointing results
Published on Friday, January 27, 2012
Ford Motor Corp’s profit fender-bender isn’t as bad as it looks. Coming up short of Wall Street’s fourth-quarter estimates dinged the auto maker’s shares, which fell as much as 6 per cent on Friday morning before recovering a bit.
It’s another reminder that the Detroit auto maker is not as pristine as shareholders at times blindly assumed it was just a year or so ago. But Ford’s also in better shape than recent scrapes suggest.
(Photo : gracieuseté de Reuters)
Commodity costs accounted for much of the problem in the final months of 2011. Fluctuations in commodities prices hit all auto makers, but Ford especially because its hedges were out of whack. While costs are likely to remain high this year, Ford doesn’t expect as bad a risk-management result.
More importantly, Ford’s balance sheet and product lineup are both solid. Earnings and reduced debt added $8-billion (U.S.) to its burgeoning net cash pile last year. Its latest version of the Fusion was the star of the Detroit auto show this month. Importantly, the North America manufacturing division remains strong, posting an 8.3 per cent pre-tax margin for the year.
There are still challenges, of course. Europe remains unprofitable. And Asia has long been a weak spot, though Ford is investing. Seven new factories are under construction on the continent to prepare for its push to sell a third of its vehicles in China by the middle of the decade.
Considering the frenzied competition in that market, shareholders are right to be skeptical until they see more progress. But even allowing for that, and for the challenges in Europe, Ford’s stock still looks attractive. It’s trading at less than eight times expected 2012 earnings, according to the consensus compiled by Thomson Reuters. That implies either no growth or greater losses in Europe.
Yet Ford’s U.S. market share looks solid, as do prices. And the company will find more savings in the final two years of a plan to put 85 per cent of global volume on just nine common engineering platforms. Investors were already riding shotgun on the story, pushing the shares up nearly a fifth before Friday’s skid. It shouldn’t be long before they shine again.
Source : ANTONY CURRIE - Reuters