Ford officials won't predict whether they can continue gaining share -- and raising prices -- even with the launch of key new products like the 2013 Ford Fusion.
Sometimes it can be difficult to please Wall Street. As trading for the week neared its close the automaker’s shares were on track to drop about a half dollar as trader’s lamented the sort of figures that they might have only fantasized about during the depths of the Great Recession. The maker reported a full-year pre-tax operating profit of $8.8 billion, or $1.51 a share, an increase of $463 million over 2010.
But what didn’t sit so well is that Ford still fell about a nickel a share short of early estimates, and more worrisome, total automotive pre-tax operating profits for the fourth quarter dipped to $586 million, a decrease of $155 million from the fourth quarter of 2010.
What’s behind it all? Analysts and company officials seem to agree on key factors including
- Losses in both Europe and Asia Pacific;
- Declining profits in the otherwise strong South American market;
- Flooding in Thailand, in particular, hurt the maker in a number of regions; and
- Commodity prices soared by about $100 million more than Ford initially planned for.
Those factors set back the maker’s continuing gains in North America on both the automotive sales front as well as a strong performance by the captive finance subsidiary Ford Credit, Ford executives acknowledged during a conference call to discuss the latest earnings report.
“We delivered strong results for the full year as we continued to serve our customers around the world with best-in-class vehicles and make progress toward our mid-decade goals,” said Alan Mulally, Ford president and chief executive officer.
Mulally noted 2011 was the third year in a row of improving annual operating profits, the fourth quarter the 11th in a row in the black after the devastating losses leading up to the automotive crash of 2008-2009.
“Despite the continued uncertainty in the external environment, the strength of our North American and Ford Credit operations allows us to continue to invest for future growth and develop outstanding products with segment-leading quality, fuel efficiency, safety, smart design and value,” the former Boeing executive said.
The fourth quarter decline was defined not only by lower income in Europe and Asia, but by higher costs. There were unfavorable exchange rates, those runaway commodity costs, and also the additional cost of compensating U.S. workers covered by the new agreement with the United Auto Workers Union – which included one-time ratification bonuses.
Efraim Levy, the auto analyst with Standard and Poor’s, said the fourth-quarter earnings were a disappointment, but not enough to adjust the rating’s firms stand on Ford’s credit. “Near term profit and market share gains (at Ford) are likely to be harder to attain, but we still see global strategy delivering,” Levy said.
S&P was one of several major ratings agencies that late last year upped Ford’s status to one notch below the investment grade that Mulally covets. While ratings are expected to hold despite the fourth-quarter disappointment, it could take a bit more positive news than before for Ford to win the next big increase.
Ford of Europe’s losses increased to $191 million from, while Ford’s Asia -Pacific operations went from a $23 million profit in the fourth quarter of 2010 to $83 million loss in the final quarter of 2011.
In addition, Ford profits from South America were cut to $108 million from $281 million because of the increasingly competitive market situation. Chinese carmakers have moved rapidly into key markets across South America, notably including Brazil, a factor impacting a number of established manufacturers.
Total vehicle wholesales in the fourth quarter were 1.4 million units, up 38,000 units from fourth quarter 2010, Ford said in its year-end financial report.
The international challenges were partially offset by favorable net pricing and volume and mix, Ford’s fourth quarter financial report said.
However, Lewis Booth, Ford’s chief financial officer, declined to predict if Ford expected to gain market share again in 2012 or raise transaction prices as it has done over the past 24 months.
For the full year, Ford’s pre-tax operating profit was $6.3 billion, an improvement of $1 billion.
A strong performance in North America and a solid profit in South America offset declines in Asia-Pacific Africa and Europe.
Full year 2011 net income was $20.2 billion, or $4.94 per share, an increase of $13.7 billion, or $3.28 per share, from a year ago. The results include a favorable one-time, non-cash special item of $12.4 billion for the release of almost all of the valuation allowance against the company’s net deferred tax assets.
Ford reported fourth quarter net income of $13.6 billion, or $3.40 per share, an increase of $13.4 billion, or $3.35 per share, from the fourth quarter of 2010. This includes the favorable impact related to the valuation allowance.
The company began to record a valuation allowance against net deferred tax assets in the third quarter of 2006, reflecting large cumulative losses incurred, as well as its financial outlook at the time.
“Consistent delivery over the past few years of strong improvement in the company’s business results now supports the release of almost all of the valuation allowance,” the company said.
Fourth quarter net income also was affected by a favorable special item of $401 million related to the sale of Ford’s Russian operations to the newly created the Ford-Sollers joint venture, which began operations on Oct. 1, 2011.
Paul A. Eisenstein contributed to this report.