Ford’s fourth-quarter net income jumped to $13.62bn or $3.40 per share from $190mn or $0.05 per share a year earlier. The financial services arm Ford Motor Credit Co. LLC or FMCC’s net income rose to $611mn from $367mn last year. Ford’s result for the quarter include a one-time, non-cash special item of $12.4bn for the elimination of a tax reserve, known as a valuation allowance, and $401mn related to the sale of Ford’s Russian operations to the newly created FordSollers joint venture.
Ford created the valuation allowance in 2006, reflecting large cumulative losses incurred and on the premise that the company may not return to profitability within a certain period of time. However, Ford has been profitable for three straight years now and no longer needed the reserve.
Excluding special items operating EPS fell to $797mn or $0.20 per share from $120bn or $0.30 per share last year. Operating EPS missed by $0.05 per share, consensus was looking for $0.25 per share.
F introduced 2012 guidance projecting higher yoy operating profit and margins - offset by a comparable yoy decline in pre-tax profit from FMCC. F generated strong operating cash flow of $700mn for the quarter. F also introduced 2012 Capex guidance of $5.5bn to $6bn, ahead of the mean analyst forecast of $5.3bn, not entirely surprising given the amount by which they under spent their original plan in 2011.
The largest shortfall to estimates came from North America which report 4Q11 pre-tax profit of $889mn vs. consensus of $1.2bn. While volume mix and price were ahead of estimates, and fixed costs increases in line, the segment saw yoy headwind of -$800mn from variable costs, higher than the -$400mn they anticipated. F lost $190mn in Europe, bringing F to a small loss of $27mn for the year, short of management’s guidance of “breakeven.” Asia-Pacific and South America results of -$83mn and $108mn also came in below expectations.
Looking forward, this was a weaker-than-expected result with steeper product cost inflation than expected in North America and a faster deteriorating European market. While this does not undo the strong product momentum that is a key part to the Ford story we expect to see shares under some pressure in the near term. We remain bullish on Ford and believe that given a better macro picture, Ford is well positioned to capture market share and drive profits.Shares of Ford reacted negatively to the EPS miss, closing Friday’s trading session down $0.53 or 4.16%.