Friday, October 28, 2011

Ford 3Q11 Earnings

Ford reported third quarter earnings Wednesday that beat the mean street estimate, but fell short of its year over year figure. Revenues beat expectations by a wide margin, coming in at 33.1 billion, an increase of about $4 billion or 14%.Vehicle wholesales were 1.3 million units, up 93,000 or 7% from 2010. Pretax operating profit was $1.9 billion or $0.46 per share – down $111 million from 2010. The Pretax operating profit includes a one-time charge of $350 million for un-realized market-to-market adjustments on commodity hedging for future periods. Third quarter net income was $1.6 billion, or 41 cents per share, a $38 million decrease from third quarter 2010. Ford generated positive automotive operating-related cash flow of $400 million in the third quarter.

In the quarter Ford took a one-time-charge of $350 million to write down valuations of commodity hedging contracts (market-to-market), caused by the swift decline in commodity prices. However CEO Alan Mulally stated that this charge “could be reversed” if commodity prices rise in the future or the company recognizes the benefits from lower input costs. If the one-time charge is taken out, considering it could be reversed at some point in the future, earnings would actually be near $2.3 billion, beating the year-over-year figure.

Also, Ford paid down $1.3 billion in debt over the quarter, positioning the company closer to their target of $10 billion in debt by mid-decade. Ford’s Automotive gross cash exceeded debt by $8.1 billion, an improvement of $10.7 billion from the third quarter a year ago.

Share of Ford traded down ~6% on Wednesday. The negative impact on the stock was a result of management failing to declare a dividend or comment on when dividends will be resumed, despite recently having their credit rating upgraded to one-notch below investment grade. Additionally, management issued end of year guidance that indicated overall sales would be toward the lowering end of the 13 million units the company had previously estimated.

Shares of Ford closed Friday up 0.25% to $12.00

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