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Ford's annual profit hits 11-year high, but stock plunges over disappointing fourth quarter

The automaker says it earned $6.6 billion in 2010, a 141% increase from 2009. But higher expenses in its North America division dampen fourth-quarter results.

January 29, 2011|By Jerry Hirsch, Los Angeles Times
  • The Ford logo is seen on the automaker's headquarters in Dearborn, Mich. Ford said Friday that it earned $6.6 billion in 2010, its highest profit in more than a decade.
The Ford logo is seen on the automaker's headquarters in Dearborn,… (Associated Press )

Despite posting its best annual profit in more than 10 years, shares of Ford Motor Co. plunged 13% in trading after the company's fourth-quarter profit fell short of Wall Street's expectations.

Still, the disappointing earnings don't mark the end of Ford's gains coming out of the recession, said Efraim Levy, an analyst with Standard & Poor's Equity Research.

"Ford is going to do better this year because of rising U.S. and global demand," Levy said.

But the automaker might be in for some rough spots in 2011.

Unlike General Motors Co. and Chrysler Group, Ford does not have a no-strike provision in its union contract, noted Moody's, the corporate credit rating agency. Moody's said Ford was likely to be selected by the United Auto Workers union as the target for contract negotiations, which will then set the pattern for key elements of contracts reached with GM and Chrysler.

"The one thing that could derail them is a new UAW contract that undermines the U.S. industry's newfound cost-competitiveness or that results in a prolonged or expensive strike," said Bruce Clark, a senior vice president with Moody's.

The automaker's net income in the fourth quarter dropped to $190 million, or 30 cents a share, excluding one-time items, from $886 million, or 43 cents a share, in the same period a year earlier. Analysts had expected the company to earn 48 cents a share. Revenue fell 6.6% to $32.5 billion.

Ford shares fell $2.52 to $16.27 on Friday.

Even though earnings didn't meet expectations, the dramatic nature of Ford's recent turnaround is evident, analysts said. The large annual profit came as the U.S. auto industry sold just 11.6 million vehicle last year, the second-lowest total since 1982. And the profit was better than for each of the boom years of 2001 through 2007, a period when the industry consistently sold 16 million to 17 million vehicles a year.

"Ford is on solid footing. The fact that they are in such healthy shape and at what are still relatively low sales levels is remarkable," said Jeremy Anwyl, chief executive of Edmunds.com, the auto information company.

The lower profit in the fourth quarter came from a $1-billion increase in expenses in Ford's North American business compared with a year ago. Ford attributed the higher spending to new-vehicle launches, higher raw-materials costs and the recent large recall of Windstar minivans. The company also had a $960-million charge related to a debt-conversion transaction that slashed its borrowings by nearly $2 billion.

Additionally, Ford had expected its European operations to be profitable in the fourth quarter, but they instead posted an operating loss of $51 million.

"We recognize that we missed concerning people's expectations," said Lewis Booth, Ford's chief financial officer. He said Ford expects improvements in both profits and cash flow this year.

Investors now need to figure out whether "the large cost increases are essentially one-time items" or whether they "represent permanently higher spending levels needed to support a higher volume of business in a more expensive commodity environment," said Brian Johnson, an analyst at Barclays Capital.

Notwithstanding the fourth-quarter speed bump, Ford posted its best annual profit since 1999, aided by long-term cost-cutting, improved vehicles and a slowly strengthening economy.

The automaker said it earned $6.6 billion, a 141% increase from $2.7 billion in 2009. Revenue rose 4% to $120.9 billion. From 2006 through 2008, the company lost $30 billion.

The 2010 gain was big enough to trigger profit-sharing checks averaging $5,000 for 40,600 hourly workers under the company's UAW contract.

"Our 2010 results exceeded our expectations, accelerating our transition from fixing the business fundamentals to delivering profitable growth for all," said Alan Mulally, Ford's chief executive. "We are investing in an unprecedented amount of products, technology and growth in all regions of the world."

Ford finished the year with more cash in its automotive operations — $20.5 billion — than it had debt — $19.1 billion. After borrowing heavily in recent years to restructure its operations, the company slashed debt by 43%, or $14.5 billion, last year. The pay-down has trimmed Ford's interest expenses by about $1 billion annually, the company said.

jerry.hirsch@latimes.com

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