Monday, June 13, 2011

Ford's Mid-Decade Outlook Calls for Aggressive Expansion

On June 7th Ford announced its mid-decade outlook. They expect the following:
  • Overall vehicle sales to increase by 50% to about 8 million  -- from 5.3 million in 2010
  • Global Automotive operating margins will increase to 8 to 9 percent from 6.1 percent in 2010, with operating margins in North America by the mid-decade in the 8 to 10 percent range
  • Capex will average about $6 billion annually through mid-decade, an increase from the $3.9 billion in capital spending in 2010
  • They will pay down approximately $6.6 billion in debt bringing their total automotive debt to about $10 billion, down from $33.6 billion in 2009 
  • The company expects to return to investment-grade in the near-term, and resume paying dividends
  • The company plans to triple its electric vehicle capacity between now and 2013, going from 35,000 EV sales yearly to more than 100,000 come 2013
F plans to achieve these milestones by continuing to make progress on its Ford One plan.

By 2014, F plans to increase its global product portfolio by 140% from 2009 levels. Based on current trends the company expects 55% of its totals sales to come from small cars by 2020, with nearly a 32% contribution from the Asia-Pacific region. The company also expects to drop vehicle prices by $1,000 to $2,000 in emerging markets, in order to meet customer needs and win new buyers for its products, while maintaining top standards for quality, fuel efficiency, safety, smart design and value that customers expect. In the month of May China sales were up 14%, while China sales for rivals GM, Toyota, and Honda fell 2.7%, 35%, and 32% respectively. 

A key factor that is driving F’s mid-decade outlook is the expectations for growth of industry volumes. Ford is expecting industry volumes to grow to the 95 million to 100 million range by mid-decade, from the74 million in 2010.

Last year the company reduced its total automotive debt by $14.3 billion and the anticipated further debt reduction will help F secure an investment-grade debt rating helping it resume dividend payments.

Despite positive projections, healthy expansion plans, strong numbers, portfolio upgrades and debt reductions F shares fell as low as $12.88, down 3.52%, today as investors reacted to an Ohio court’s $2 billion judgment against the automaker late Friday in a class action lawsuit filed by a group of commercial truck dealers. The jury found that Ford had overcharged the dealers $800 million for commercial trucks. The $2 billion award factors in interest. Ford is appealing the ruling and said it is confident that the ruling will be reversed. The headline number appears very large, but it can take several years for any award to be dispersed, as well as the possibility that both sides could settle for a lower amount. Analysts are confident that a failure to win an appeal would be costly, but absorbable for F. No settlement or reduction in the amount awarded could erase about 47 cents per diluted share in Ford’s shareholders’ equity. However, upon further review, S&P equity analyst raised their 2012 EPS estimate by 1 cent to $2.19.

F’s initiatives have given us ample reasons to take a positive view on the company and we remain bullish on Ford in the long-term. F shares finished the day at $13.14, down 1.57%.

-Michael Biagi 

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