Ford ‘Money Machine’ May Report Best Year Since 2000
Ford May Report Most Profitable Year Since 2000
Jeff Kowalsky/Bloomberg
Ford’s quality was best among mass-market brands last year in a J.D. Power & Associates survey of car buyers after 90 days of ownership, placing fifth after luxury brands including Porsche.
Ford’s quality was best among mass-market brands last year in a J.D. Power & Associates survey of car buyers after 90 days of ownership, placing fifth after luxury brands including Porsche. Photographer: Jeff Kowalsky/Bloomberg
Ford May Report Most Profitable Year Since 2000
Mark Elias/Bloomberg
New models such as the Fiesta, seen here, and redesigned Edge sport-utility vehicle helped propel Ford’s U.S. sales up by 17 percent last year, more than the 11 percent industrywide gain.
New models such as the Fiesta, seen here, and redesigned Edge sport-utility vehicle helped propel Ford’s U.S. sales up by 17 percent last year, more than the 11 percent industrywide gain. Photographer: Mark Elias/Bloomberg
Ford Motor Co. Chief Executive Officer Alan Mulally
Antoine Antoniol/Bloomberg
Chief Executive Officer Alan Mulally has improved quality and expanded the model lineup.
Chief Executive Officer Alan Mulally has improved quality and expanded the model lineup. Photographer: Antoine Antoniol/Bloomberg
Ford Motor Co., the second-largest U.S. automaker, may report its most profitable year since 2000 tomorrow, boosted by new models and a better reputation.
The annual profit would be the second straight for Chief Executive Officer Alan Mulally, who has improved quality and expanded the model lineup. Profit excluding some items for 2010, according to the average of 15 analysts’ estimates, may be $2.08 a share, the highest since $4.36 a share in 2000. Fourth-quarter profit may be 48 cents, the average of 14 estimates.
“Ford is building better cars, they’re more fuel-efficient and they’ve really focused on quality since Alan Mulally came in,” said Gary Bradshaw, a fund manager at Dallas-based Hodges Capital Management, which owns 100,000 Ford common shares and 100,000 preferred shares. “He’s just making this company a money machine.”
The estimates for quarterly and 2010 profit exclude items such as a $960 million charge Ford planned to take in the fourth quarter because of a plan to pay investors in its convertible debt to swap their notes for shares. Profit excluding items was 9 cents a share in 2009.
Ford had $6.37 billion in net income in the first nine months of 2010, the most since 1998 and more than any other automaker.
Ford shares rose 68 percent in 2010 and have gained 12 percent this year in New York Stock Exchange composite trading. Battered by $30 billion in losses over three years, Ford fell to a close of $1.26 on Nov. 19, 2008, as rising fuel prices and the financial crisis led to a collapse in auto sales. Today, Ford rose 42 cents, or 2.3 percent, to $18.79 at 4 p.m., the highest closing price since Nov. 30, 2001.
Quality Rankings
Ford’s quality was the best among mass-market brands last year in a J.D. Power & Associates survey of car buyers after 90 days of ownership, placing fifth after luxury brands including Porsche.
Ford avoided the government bailouts and bankruptcies that befell the predecessors of General Motors Co. and Chrysler Group LLC in 2009. Dearborn, Michigan-based Ford also attracted buyers from Toyota Motor Corp. after the Japanese automaker recalled more than 8 million models for defects related to unintended acceleration in 2009 and 2010.
“For Ford, 2010 was a breakout year in terms of customer perceptions of their design and quality,” Adam Jonas, an analyst with Morgan Stanley in New York, said in an interview. He rates Ford “overweight,” and predicts the shares may reach $23 within 12 months. “Ford was the No. 1 beneficiary of Toyota’s problems and the Government Motors moniker that was applied to GM.”
Volvo Sale
Ford’s 2010 revenue may have fallen to $114.5 billion, the average of 12 estimates, from $118.3 billion in 2009. In August, Ford sold its Volvo Cars unit to China’s Zhejiang Geely Holding Co. In 2009, Volvo had revenue of $12.4 billion, Ford said.
New models such as the Fiesta and redesigned Edge sport- utility vehicle helped propel Ford’s U.S. sales up by 17 percent last year, more than the 11 percent industrywide gain. Consumers paid an average of $30,313 for the company’s models last year, up 19 percent from 2002 and the first time Ford vehicles topped $30,000, according to online auto researcher Edmunds.com.
“Ford’s challenge is keeping it up,” said Jessica Caldwell, director of pricing and industry analysis for Edmunds, which is based in Santa Monica, California. “When you’re the underdog, it’s easy to do well. Now they’re seen as the leader and everyone is going after them.”
Resurgent Competitors
A resurgent GM and Toyota will make it difficult for Ford this year to repeat the significant U.S. market share gains it made in the last two years, said Efraim Levy, an auto analyst with Standard & Poor’s Equity Research in New York.
“The road is getting a little narrower for Ford because there’s more healthy competition coming on the freeway,” Levy, who rates Ford “hold,” said in an interview.
Ford, which is introducing redesigned versions of its Focus compact and Explorer SUV this year, is expecting more intense competition, said Chief Financial Officer Lewis Booth.
“Clearly, our domestic competitors are improving their businesses,” Booth said in a Jan. 10 interview. “I’m not sure it’s going to change the dynamics a lot.”
Ford avoided bankruptcy because it borrowed $23 billion in late 2006, after Mulally arrived from Boeing Co. and before credit markets froze. The automaker put up all major assets, including the Ford logo, as collateral in what Mulally called “the world’s largest home-equity loan” to build a cash cushion to withstand losses while developing new models.
‘Some Way to Go’
Ford still has “some way to go” to reduce debt and improve its balance sheet, Booth said. GM and Chrysler had obligations forgiven in bankruptcy. Ford paid down $12.8 billion in debt last year, leaving it with $20.9 billion in liabilities in its automotive operations as of Nov. 24 on a pro-forma basis.
Still, Jonas said lenders are now giving Ford interest rates associated with investment-grade companies, which the automaker hasn’t been since 2005. Moody’s Investors Service rates Ford Ba2, the second level below investment grade, and Standard & Poor’s rates it B+, four steps below.
“Over the last year, Ford went from a company with a balance sheet seen as getting better to one that’s just outright strong,” said Morgan Stanley’s Jonas. “It now has the ability to raise debt in the market as if it were investment grade.”
To contact the reporter on this story: Keith Naughton in Southfield, Michigan, at knaughton3@bloomberg.net
To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net
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