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Ford Posts First Full Year Profit Since 2005

published  First Published: 29/01/2010
Article written by: Nigel Brookson
Ford posted a profit of $US2.7 billion ($A3 billion) in 2009 and a fourth-quarter profit that soundly beat Wall Street forecasts, supported by a strong return from its financing arm and operating profits in its global automotive operations.
But analysts cautioned that much of the quarterly beat came from volatile financing arm results and Ford would take actions this year to address its heavy debt load that ultimately could prove dilutive to its stock.
Ford has confidence in its restructuring plan, but it remains "a work in progress and is far from complete," Chief Executive Alan Mulally said on a conference call.
"The economy remains soft in many areas of the world and the global auto industry continues to wrestle with excess vehicle capacity, volatile commodity prices, and a fragile supply base," Mr Mulally said.
Chief Financial Officer Lewis Booth told reporters Ford had a lot of work to do on what he called its "uncompetitive balance sheet."
"We are not kidding ourselves, we know that we still have a lot of debt on our balance sheet," Mr Booth said.
Ford's debt load has left it at a disadvantage to rivals General Motors Co and Chrysler, whose balance sheets were cleansed in government-sponsored bankruptcies in 2009. However, the stigma of those bankruptcies likely helped Ford gain market share from those rivals, analysts said.
Ford gained US market share in 2009 amid the worst US industry sales market in 27 years and expects its share of the US market to stay flat or increase in 2010.
"Ford certainly has got great momentum and will continue to have great earnings momentum into 2010," Morningstar analyst David Whiston said. "But they do have too much debt and they are going to take actions to reduce that in 2010, some of which will likely require shareholder dilution."
Ford's profits come as rival Toyota Motor Corp is mired in a crisis over faulty accelerator pedals that have led to a massive recall of top-selling vehicles and the suspension of US production and sales.
Mr Mulally said more consumers may look at Ford products because of the Toyota recall.
"I think it's going to depend on how this all plays out and how fast Toyota gets this behind them," Mr Mulally said. "But clearly with the void right now and people needing vehicles, I am sure that there's going to be even more interest in Ford."
Ford halted production of a diesel commercial van in China after finding the accelerator pedals were supplied by the company at the center of the Toyota recall. Ford said it had no reports of a defect, but would study the pedal.
Cash flow seen positive in 2010
The full-year profit in 2009 snapped a three-year streak of losses that totalled $US30 billion from 2006 through 2008, including a record net loss of $US14.7 billion in 2008.
For the fourth quarter, Ford posted a profit of $US868 million, or 25 US cents per share, compared with a year-earlier loss of $US6 billion, or a $US2.51 per share. Revenue rose to $US35.4 billion from $US29 billion.
Operating profit excluding one-time items was 43 US cents per share. On that basis, analysts on average expected 26 US cents.
JP Morgan analyst Himanshu Patel said that although Ford's adjusted results were stronger than he had expected, the gain "was entirely driven by volatile financial services profits."
Mr Patel said in a note for clients that a lease-related gain in the quarter from Ford Motor Credit Co was driven by gains in used-car values that would prove "unsustainable."
Ford reported $US3.1 billion of positive cash flow in the fourth quarter from its automotive operations. Ford's total cash burn was $US300 million for the year, compared with a whopping $US19.5 billion in 2008.
The automaker expects positive cash flow in 2010, but does not expect it to be as strong as the second-half cash flow.
Ford ended the year with total automotive debt of $US34.3 billion, up from $US26.9 billion at the end of the third quarter mainly due to contributions to the retiree healthcare plan for the United Auto Workers union.
From its automotive business, Ford posted pre-tax operating profits in each of its four regions in the fourth quarter, and a total of $US1.07 billion overall.
The 2009 profit allows Ford to make profit-sharing payments to UAW for the first time since 2004. It previously said it would pay merit increases for US salaried workers.
The Volvo unit, which Ford plans to sell to Geely, had a pre-tax operating loss of $US32 million in the quarter, much narrower than the $US736 million loss a year earlier. Ford has not announced a closing date for the sale.
The number two US automaker had cash and marketable securities in its automotive operations of $US25.5 billion at the end of 2009, compared with $US23.8 billion at the end of September.
Ford repeated its forecasts that it would be "solidly profitable" in 2011 and US auto industry sales would rise to a range of 11.5 million to 12.5 million units this year including medium and heavy trucks, from 10.6 million in 2009.
The automaker's financing arm reported net income of $US440 million in the fourth quarter, compared with a $US228 million net loss a year earlier. It posted net income of $US1.27 billion for 2009, compared with a net loss of $US1.54 billion in 2008.
Ford shares were unchanged at $US11.55 Thursday afternoon on the New York Stock Exchange. Ford stock has jumped nearly six-fold in the past year, and its market cap now exceeds $US37 billion.


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