Sunday, January 30, 2011

Despite Excellent Year, Ford (F) Pummelled by "What Have You Done for Me Later?" Speculator Class

Ford took a beating Friday, showcasing some of the positives of being a private company versus a public.  In the public eye you must manage to the quarter - every 90 days is a whole new period - and anything over 91 days old or 91 days forward might as well be a parallel universe.  The company missed versus analysts expectations (30 cents vs 48 cents), mostly due to what appear to be miscommunication on costs, plus the CEO Mulally did "horrible" thing by giving union workers $2000 more in year end bonus checks ($5000 v $3000) than required by contract.  Remember, in America if you don't maximize everything for shareholder gain, you might as well move to Europe and be like one of those socialist  CEOs - sharing any spoils with the worker class above the bare minimum is frowned upon! ;)

On a more serious notes this quarter does bring up some of the challenges that we've outlined would come in the future - first, higher commodity costs as The Bernank drives up prices, and second, as the company does well, the unions are going to want some of the spoils after being slashed and burned the past half decade.

Technically, the chart of the stock now looks a mess, after a high volume red candle Friday.  There is an obvious gap in the low to mid $15s to fill from early November 2010, it would seem extremely likely this gets filled.  If one believes this the name is a short on any cursory bounces until/if/when that gap is filled, at which time the long side looks more interesting.  If the overall market can sustain any meaningful selloff (long overdue) there might be a chance for some prints in the $14s where the name would look very attractive.  Poised to make over $2 in 2011, the stock trades at 8xish forward earnings - there is a good chance Ford trades to mid $20s within 18 months in my opinion.  Again Ford was able to create nearly $2.00 in profits in a North American market that is substantially below "normal" annual run rates, so any 'recovery' in the economy should be boosting annual sales closer to 14M versus the 11-12M we've seen of late.

Via AP:
  • Despite reporting a profit for 2010, the Ford's stock fell more than 13 percent to close at $16.27. Investors were disappointed that the results fell short of expectations. Ford also posted an 80-percent drop in fourth-quarter net income, missing forecasts and ending two years of better-than-expected results.
  • "When a company consistently beats expectations, analysts and investors start pushing. They raise the bar to the extent that eventually they're going to miss it," Standard and Poor's analyst Efraim Levy said.
  • Ford earned $6.6 billion, or $1.66 per share, last year, more than double the $2.7 billion, or 86 cents per share, it made in 2009. That was the most it's made since 1999, when it earned $7.2 billion.  But excluding charges from debt reduction and other items, Ford earned $1.91 last year, below the $2.05 analysts expected.
  • Ford said it should have kept analysts better informed about potential problems in the fourth quarter, including a loss in Europe and a $1 billion increase in costs in North America, partly to fund the launch of new products like the Ford Explorer.
  • Ford's U.S. sales jumped 20 percent in 2010, double the rate of the rest of the industry. The Ford brand was the top-selling brand in the U.S. last year, besting Chevrolet and Toyota for the first time since 2003.
  • Another potential drain on Ford's income could be the United Auto Workers union, which negotiates a new contract with Ford this fall. Ford's U.S. factory workers turned down a 2009 agreement that would have frozen entry-level wages and limited their ability to strike. With an eye on Ford's healthy profits, workers also may demand that the company restore some of the wage cuts they agreed to in their last contract.
  • Ford made a peace offering to its 40,600 U.S. factory workers Friday, announcing that they would get $5,000 profit-sharing payments this year. It's the first time Ford has handed out the checks since 1999. 
  • Mulally remains upbeat about 2011, saying the company expects profits and cash flow to improve. Chief Financial Officer Lewis Booth said debt reduction efforts also will continue, aiming to get Ford back to investment-grade status. Debt fell from $33.6 billion to $14.5 billion during the year, lowering Ford's interest payments by a little more than $1 billion. A $960 million charge related to debt reduction was one reason for Ford's weak fourth-quarter results.
  • Fitch Ratings, unfazed by Ford's earnings miss, raised the company's corporate debt ratings to "BB," or two notches below investment grade.  Bill Selesky, an analyst with Argus Research, remains bullish on Ford.  "There are too many good things going on at Ford to say that the story's over," he said.
[Dec 13, 2010: Merrill - Ford Headed to $24 
[Oct 5, 2010: Starting Ford on Impressive Quarter]

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