Ford Motor Co. (F) has shown a profit of $8 million (excluding special items) for 2009, driven by favorable net pricing, structural cost reductions, net gains on debt reduction actions and strong Ford Credit results. This was the company’s first annual profit since 2005 and a $7.3 billion improvement over 2008.
In the fourth quarter of the year, Ford posted a profit of $1.6 billion or 43 cents per share (excluding special items), compared to a loss of $3.3 billion or $1.40 per share a year ago. The profit was significantly higher than the Zacks Consensus Estimate of 24 cents per share.
Revenue in the fourth quarter revenue went up 22% to $35.4 billion. However, revenue declined 11% to $118.3 billion in 2009.
Ford Automotive
In the fourth quarter, Ford Automotive recorded a pre-tax operating profit of $1.1 billion compared to a loss of $3.3 billion a year ago. The improvement reflected favorable net pricing, higher volume and mix, lower material costs and structural cost reductions, offset partially by unfavorable exchange rates. In 2009, the pre-tax operating loss reduced to $1.4 billion from $6.4 billion in 2008.
Revenue in the fourth quarter rose 29% to $32.6 billion. The increase was attributable to higher volumes and favorable net pricing. In 2009, revenue was $106 billion, a decline of 13% from 2008.
In North America, revenue went up 40% to $15.8 billion. The region showed a pre-tax operating profit of $707 million compared to a loss of $1.9 billion a year ago. The improvement was attributable to higher volume and mix, favorable net pricing and lower material costs, offset partially by unfavorable exchange rates.
In South America, revenue shot up 53% to $2.1 billion. Pre-tax operating profit in the region was $369 million compared to $105 million a year ago. The increase was due to favorable net pricing and higher volume and mix, offset partially by unfavorable exchange rates.
In Europe, revenue increased 14% to $8.7 billion. Pre-tax operating profit was $305 million compared to a loss of $338 million a year ago. The improvement was attributable to lower material costs, higher volumes, favorable net pricing and structural cost reductions, offset partially by an unfavorable product mix.
In Asia-Pacific & Africa, revenue dipped 14% to $1.6 billion. Pre-tax operating profit was $19 million compared to a loss of $208 million a year ago. The improvement reflected favorable net pricing, joint venture profits in China and structural cost reductions.
Despite being up for sale, Ford’s Volvo unit reported a 18% rise in revenue to $3.9 billion. The unit showed pre-tax operating loss of $32 million compared to a loss of $736 million a year ago. The improvement was attributable to structural cost reductions, higher volume and mix, favorable net pricing and lower material costs, offset partially by unfavorable exchange.
Ford’s Other Automotive — consisting primarily of interest and financing-related costs — depicted a pre-tax loss of $298 million in the quarter.
Automotive Structural Cost Reduction
Ford reduced its Automotive structural costs by $500 million in the fourth quarter. In 2009, Ford achieved $5.1 billion in Automotive structural cost reductions, exceeding its full-year target of about $4 billion, reflecting lower manufacturing and engineering costs, a reduction in pension and retiree health care expenses, and lower advertising and sales costs as Ford completed major restructuring actions.
Financial Services
The Financial Services sector reported a pre-tax operating profit of $683 million, compared to a loss of $384 million a year ago. Ford Credit reported a pre-tax operating profit of $696 million, compared with a loss of $372 million a year ago. The increase reflected lower residual losses due to higher auction values and lower provisions for credit losses, offset partially by lower volumes.
Financial Position
Ford had cash and cash equivalents of $10.3 billion as on December 31, 2009. Automotive gross cash was $25.5 billion in 2009. The company had Automotive operating-related cash outflow of $300 million in the year, an improvement of $19.2 billion from year-ago level. Capital expenditures were $4.5 billion in the year.
Looking Ahead
Ford expects full-year industry sales in the U.S. to be in the range of 11.5 million units to 12.5 million units, including medium and heavy trucks. For the 19 markets in Europe that Ford tracks, full-year industry sales is expected in the range of 13.5 million units to 14.5 million units, including medium and heavy trucks. Capital spending is expected in the range of $4.5 billion to $5 billion as the company continues to focus on its product plan.
Although we are duly impressed by Ford’s overwhelming results, we cannot ignore its exposure to high costs due to incentives and product launches as well as risks emanating from labor contract negotiations. This has led us to keep our Neutral recommendation for the stock.
Read the full analyst report on “F”
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