Ford has its strongest year in a decade
Ford Motor Co., with a more than 200% increase in net income for 2011, reported its strongest year in a decade as American automakers continue to recover from the tailspin of 2008 and 2009.
Only last week, General Motors Co. reported that its global sales for last year led the industry again, after the automaker had fallen out of first place during the recession. Both GM and Chrysler Group also are expected to report profitable 2011 financial results in the coming weeks.
Domestic manufacturers are in the middle of a slow but solid recovery, said Peter Nesvold, a Jefferies & Co. analyst.
Americans are still buying historically low numbers of vehicles — less then 13 million last year — yet the industry is profitable and GM’s operating earnings are also expected to be in the billions, Nesvold said.
“Those facts alone aren’t necessarily reasons to run out and buy the stocks, but from a fundamental standpoint, it is very encouraging to see a profitable auto industry at these levels,” he said.
Although much of Ford’s big gain came from a special tax allowance, it still posted an annual pre-tax operating profit of $8.8 billion, almost 6% above the prior year, and the best since 1999. It now has recorded 10 consecutive quarters of operating profits.
Nonetheless, the automaker’s results were dragged down by losses in Europe and Asia and rising commodity prices, and it reported a percentage drop in fourth-quarter operating profit compared with the same period of 2010.
Ford’s annual net income reached $20.2 billion, helped by the special one-time, non-cash gain, and was the best since 1998. The company had piled up various tax-loss credits but was unable to use them until it became consistently profitable. Now it is starting to move the credits onto its balance sheet.
This year, Ford expects “to continue improving our business and delivering solid profits,” said Alan Mulally, the company’s chief executive.
However, Ford’s fourth-quarter operating profit fell almost 15%, to $1.1 billion, or 20 cents per share, from $1.3 billion, or 30 cents a share, in the fourth quarter of 2010. Analysts were expecting earnings per share of 25 cents. Its fourth-quarter revenue rose 6% to $34.6 billion.
“You can’t sugarcoat the quarter. They came up short. But you have to be encouraged by the outlook,” Nesvold said.
Ford’s shares fell 53 cents, or 4%, to $12.21.
As in prior quarters, Ford continues to do best in North America, its core market. The automaker reported an operating profit of $889 million for the region, compared with a profit of $670 million a year earlier.
Ford sold 2.1 million vehicles in the U.S. market last year, an 11% increase. It was the No. 2 seller, capturing a 16.8% share of the market and trailing only General Motors.
The automaker’s U.S. sales growth is a result of a product lineup that is “fuel-efficient, aggressively styled and more than competitive with traditional class-leading offerings from Toyota and Honda,” said Alec Gutierrez, an analyst at Kelley Blue Book, the auto information company.
But Ford continued to struggle in Europe, losing $190 million, almost four times what it lost in the same quarter a year earlier. The European debt crisis is damaging the region’s economy and will make it hard for Ford and its rival automakers to make money there this year, Gutierrez said.
Ford’s profit in South America was $108 million, down from $281 million in the prior year. It also posted a loss of $83 million in Asia — in part because of the floods in Thailand — compared with a profit of $23 million during the same period a year earlier.
Despite the problems, analysts said Ford was navigating difficult waters successfully and was continuing to improve its business.
Ford’s ability to operate profitably represents the success of its strategy started in 2006, when the company mortgaged most of its assets to borrow $23.5 billion. It used the funds to restructure the business so that it could weather the economic downturn and eventually return to a growth mode.
Ford stood out in the recession as the only domestic manufacturer not to file for bankruptcy protection and become a recipient of a federal bailout.
The upswing is translating into more jobs. Ford said earlier this year that it would hire about 5,000 workers at its U.S. factories.
Workers also will get a slice of the automaker’s profits.
Ford said it is making profit-sharing payments to about 41,600 U.S. hourly employees under its collective bargaining agreement with the United Auto Workers. The workers are receiving about $6,200.
Based on the company’s financial performance during the first half of last year, the workers received $3,750 each in December. Now they will get an additional $2,450 each based on the financial results of the second half of the year.
The automaker also has whittled away at its debt, slicing it to $13.1 billion by the end of the year, down from $19.1 billion at the end of 2010. Ford said its automotive operations have built up $22.9 billion in cash, up more than $2 billion from the prior year.
Ford has reinstated a quarterly dividend and will pay 5 cents a share to holders of Class B and common stock as of Jan. 31. The payment will be made March 1.
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