Ford’s Positive Financial Results Tempered by European Debt Crisis

Ford executives are optimistic the auto maker will carry momentum generated from last year into 2012, but hint there may be some stumbling blocks along the way.

After closing 2011 with a pre-tax operating profit of $8.8 billion, an increase of $463 million vs. year-earlier, Chief Financial Officer Lewis Booth says Ford “expects to grow volume and be profitable for 2012.”

Booth, during a conference call with analysts and reporters to report the auto maker’s fourth-quarter and full-year 2011 financial results, says he expects the key North American market to build on its performance in 2011, when Ford posted a pre-tax operating profit of $889 million, up from $670 million year-ago.

The Asia/Pacific market also should turn in strong results in 2012, he says, despite reporting a pre-tax operating profit of just $108 million, down from $281 million compared with like-2010.

Much of the shortfall in the region arose out of unforeseen negative circumstances, including the Japan tsunami and Thailand flooding, he says, noting the natural disasters resulted in some premium freight costs to supply plants with needed parts.

Europe, however, is a different story. In the fourth quarter of last year, Ford reported a pre-tax operating loss of $190 million, up from a $51 million loss in prior-year.

Growth in Europe was hampered by the eurozone’s sovereign debt crisis and austerity measures. Ford hopes new products, including the Ranger pickup and B-Max and Kuga cross/utility vehicles, will bring better results.

But Booth says there are still uncertainties in the region that could lead to another down year.

“We remain cautious about the economic development of Europe,” he says. “It’s very different by country. Some are well into recession, some on the verge and one or two countries (are doing) OK.”

The executive says Ford hasn’t experienced dramatic volume drops in Europe, but has seen a significant increase in incentive spending by competitors, many of which have overcapacity in the region.

Booth says Ford has achieved “positive pricing” in Europe, which has “more than exceeded incentive spending.”

The auto maker also enjoys a healthy 93% capacity utilization in the region, which has helped mitigate losses.

“The external environment in Europe is uncertain, and likely to remain so for some time,” Booth says. “We continue to review and accelerate actions to improve our business, including fully leveraging the One Ford plan.”

Another potential trouble spot in the year ahead is South America, particularly Brazil, where increased competition has bitten into Ford’s profits.

In the fourth quarter, Ford’s pre-tax operating profit in South America was $108 million, down from a $281 million profit year-ago. For full-year 2011, the South America unit reported a pre-tax profit of $861 million, down from $1 billion in like-2010.

“What we’re seeing in South America, Brazil in particular, is a change in environment,” he says. “Importers that haven’t been there are putting pressure on pricing, and in addition to increased competition, those importers are bringing in global products, where historically most of South America was operating on legacy products.”

Ford plans to fight fire with fire by replacing aging products developed specifically for the South American market with new vehicles based on global platforms.

One new product, the EcoSport small CUV, is “tremendously important,” Booth says, noting by mid-decade Ford will have 16 new products in the region, 15 of which will be underpinned by global platforms.

Despite some trouble spots in its global operations, Ford’s full 2011 financial results indicate the auto maker is on the right track and ready to take advantage of an improving global economy, CEO Alan Mulally says.

The executive says Ford expects 3% growth in the global automotive market in 2012, to between 75 million and 85 million units.

In the U.S., Mulally says Ford predicts a seasonally adjusted annual sales rate of 13.5 million to 14.5 million units.

“With the average age of (U.S.) vehicles getting close to 11 years, consumers want to obtain new vehicles,” he says. “There are a number of things that look well for us.”

In 2011, Ford managed to shave $6 billion off its total automotive debt, which now stands at $13.1 billion. The auto maker ended 2011 with $22.9 billion in automotive gross cash, exceeding its debt by $9.8 billion.

Fourth-quarter revenue was $34.6 billion, and the full year was $136.3 billion, an increase of $15.4 billion from like-2010. Ford’s fougth-quarter pre-tax operating profit was $1.1 billion, a decrease of $189 million from year-ago. The result represents the auto maker’s 10th consecutive quarter of pre-tax operating profit.

Full-year net income was $20.2 billion, or $4.94 per share, an increase of $13.7 billion, or $3.28 per share, from like-2010.

Net income includes a favorable one-time, non-cash special item of $12.4 billion related to the release of a valuation allowance established in 2006 against net deferred tax assets, Ford says.

“We have knowledge of what lies ahead, and we’re building on what we’ve accomplished so far,” Mulally says. “We recognize we have challenges and opportunities. Chief among them is the realization of our full global scale.”

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      Ford Fourth Quarter Financial Results

                 2011               2010                 % change

Sales                                 $34,600          $32,500            6.5

Net income                       $13,615          $190                 7,065

E/S                                    $3.40             $0.05                6,700

Unit Sales                          1,427             1,389                2.7

Note: Dollar sales and net income stated in millions; unit sales in thousands. E/S is earnings per share. Unit sales are worldwide wholesale deliveries.