Tuesday, July 26, 2011

Ford Remains in Neutral -- 2Q11 Earnings

Ford reported earnings of $0.59 a share, which includes one time charges of $0.06 a share, reflecting net income of $2.4bn, a $201 million decrease from second quarter 2010. Along with the 7.7% drop in second quarter EPS, F reiterated earlier warnings that the second half of the year will be weaker than the first, sending shares of Ford down 1.75% to $12.94.

Revenues were up 13% to $35.5bn as strong transaction prices, especially in North America, boosted revenue by $1.1bn. However CFO Lewis Booth said prices will be under increased pressure and won’t be “at quite the same level as the first half”. Other Automakers are likely to spend more on incentives in the second half as they boost inventories that were depleted by the March tsunami in Japan. The weaker earnings, despite improved revenues, are a result of higher structural, commodity and vehicle launch costs.

The company’s commitment to return to investment grade “sooner rather than later” as Booth said was further solidified in the second quarter. Gross debt shrank by $2.6bn billion to $14bn and cash reserves sit at $22bn, $700 million more than last quarter. Resumption of dividend payments relies heavily on an investment-grade rating, and now after 8 consecutive quarters of operating profits and consistent balance sheet improvements, F is not far from achieving just that.

Looking forward F has maintained its overall U.S sales forecast of between 13 million to 13.5 million and in the 19 European markets F tracks, they expect full-year sales to be between 14.8 million and 15.3 million, compared with its previous forecast of between 14.5 million and 15.5 million. It’s going to be a rocky second half, but we remain bullish on F in the long-term. They have shown an ability to remain profitable while strengthening their balance sheet and investing in their future.


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