Ford reduced its debt by $14.5 billion in 2010, a 43% decrease, but missed analyst expectations as Europe showed a loss and capital spending rose.
Ford Motor Company (NYSE: F) today reported 2010 full year net income of $6.6 billion, or $1.66 per share, an increase of $3.8 billion, or 80 cents per share, from 2009.
This was Ford’s highest net income in more than 10 years, as rising sales showed improvements in many of Ford’s business operations around the world. Ford made 5,351,000 vehicles in 2010, and sold 5,313,000. Ford results were also helped considerably by the sale of Volvo to the Chinese, which removed from the balance sheet the -$662 million loss Volvo posted in 2009.
However, fourth quarter net income was $190 million, or 5 cents per share, a decrease of $696 million from a year ago. Net income was hurt by a $960 million charge for debt conversion that reduced outstanding automotive debt by more than $1.9 billion. As a result, fourth quarter pre-tax operating profit was $1.3 billion, or 30 cents per share, a decrease of $322 million from a year ago. In early trading Ford stock was off 10% as investors fled, fearing that Ford isn’t as good as portrayed.
Ford now has posted a pre-tax operating profit for six consecutive quarters. Nonetheless, Ford is still listed as below investment grade by the rating agencies – Moody’s Investors Service (Ba2) and Standard & Poor’s B+. Both are junk ratings that raise borrowing costs and limit large mutual funds from buying Ford bonds. Ford lost its investment grade rating in 2005. (See Ford Reduces Debt With Successful Conversion Offers)
Several issues face Ford before it returns to full financial health: Ford needs to pay down remaining debt of more than $19 billion, increase funding of underfunded pension plans, turn around its declining European sales, increase it presence in India and China, and successfully negotiate a new contract with the United Auto Workers Union this year.
The labor issue is, perhaps, the largest unknown at Ford since improving global economies should increase cash flow and profits at most of ford’s operations. Both Chrysler and General Motors have “no strike” clauses in UAW contracts that were inserted when the U.S. Treasury Department funded their bankruptcies and thus far successful reorganizations. Ford has no such protection, and is the likely target for the UAW this year, even though Ford is paying its 40,000 hourly workers a $5,000 bonus, up from $490 for 2009.
Ford made progress in strengthening its balance sheet, reducing automotive debt by $14.5 billion in 2010, a 43% decrease, which came mostly from increasing shares of common stock. These actions will lower annualized interest expense by more than $1 billion. Ford said it finished the year with automotive gross cash exceeding debt by $1.4 billion.
Fourth quarter actions reduced automotive debt by $7.3 billion, including $2.5 billion of newly announced debt reductions to pay down Ford’s revolving credit facility and term loans.
North America: In the fourth quarter, Ford in North America reported a pre-tax operating profit of $670 million, compared with a profit of $611 million a year ago. The increase was the result of lower incentives and increased sales. This was offset, partially, by reserves for ongoing Windstar corrosion recalls. (See Ford Recalls 425,000 Windstar Minivans for Bad Steering)
Fourth quarter revenue was $17.2 billion, up from $15.6 billion a year ago. For the full year, North America reported a pre-tax operating profit of $5.4 billion, compared with a loss of $639 million a year ago.
South America: In the fourth quarter, Ford in South America reported a pre-tax operating profit of $281 million, compared with a profit of $369 million a year ago. This decrease was “more than explained,” according to Ford, by higher commodity and structural costs, offset partially by favorable net pricing.
Fourth quarter revenue was $2.8 billion, up from $2.6 billion a year ago. For the full year, South America reported a pre-tax operating profit of $1 billion, compared with a profit of $765 million a year ago.
Europe: In the fourth quarter, Europe reported an alarming pre-tax operating loss of $51 million, compared with a profit of $253 million a year ago. The decline was the result of lower market share, higher structural costs to support product launches, higher commodity costs, and lower industry volume, according to Ford.
Ford said its lower market share reflects Ford’s decision to reduce low-margin business, as well as the negative effect on its small car sales of the ending by European governments of the taxpayer subsidized scrappage programs.
Fourth quarter revenue was $8.1 billion, down from $8.2 billion a year ago. Compared to Ford’s previous “guidance” for European results, the fourth quarter was worse than predicted, though. Ford’s European sales were off -14%, second only to Fiat’s drop of -17%. (See EU Auto Sales Slump Continues in 2010 for Third Straight Year ) For the full year, Ford Europe reported a pre-tax operating profit of $182 million, compared with a loss of $144 million a year ago.
Asia Pacific Africa: In the fourth quarter, Asia Pacific Africa reported a pre-tax operating profit of $23 million, compared with a profit of $16 million a year ago. This came from higher volume in regions where Ford is a small player. Fourth quarter revenue, which excludes sales at unconsolidated China joint ventures, was $2.2 billion, up from $1.7 billion a year ago. For the full year, Asia Pacific Africa reported a pre-tax operating profit of $189 million, compared with a loss of $86 million a year ago.
