We previously looked at Century Link (CTL), Spartan Stores Inc (SPTN), and DTE Energy (DTE), and The Dow Chemical Company (DOW). Today lets take a look at Ford Motor Company (F).
Ford Motor Company (F): Quote / Chart TTM P/E 12.37; Next full year forward P/E (FY2011) 7.31; Dividend yield 0.00%. Based on June 16, 2010 closing price of $11.63
Ford Motor Company is headquartered in Dearborn, Michigan. The company’s automotive brands include Ford, Lincoln, Mercury, Volvo and Mazda (a consolidated subsidiary). They provide financial services through Ford Motor Credit Company and customer service support to their dealers through Quality Care, Motorcraft, Quick Lane and Extended Service Plan. A global automotive industry leader and manufactures or distributes automobiles across six continents. Ford employs about 176,000 and has about 80 plants worldwide.
Full year net income was $868 million or $0.25 per share in 2009 compared with a net income loss of $14.571 billion or a loss of $6.41 per share in 2008
They reported 1Q 2010 net income of $2.085 billion, or 50 cents per share compared to a net loss of $1.427 billion or a loss of $0.60 per share in 1Q 2009. Pre-tax operating profit was $2 billion, or 46 cents per share, compared to operating profit net loss of $1.982 billion or a loss of $0.75 per share in 1Q 2009.
As you may remember Ford walked away from the government bailout funds. It was probably a good thing for shareholders considering the government imposed restructuring plans on both GM and Chrysler that included filling bankruptcy. So what happened to all that debt they needed help with, it’s still there and it’s still a substantial amount, $34.3 billion attributed to the Automotive Division and $94.2 Billion attributed to the Financial Services Division in1Q 2010.
Lets look at each of them and what Ford is doing to bring them back under control, first the Automotive Division:
During 2009 Ford reduced structural cost by $5.1 billion over 4Q 2008 levels.
On December 23,2009 they announced their plans to sell Volvo the loss-making Swedish firm to a Chinese consortium led by Zhejiang Geely Holding Group. On March 28, 2010 they announced they had signed a definitive agreement regarding the sale of Volvo Car Corporation and related assets (primarily intellectual property) with Geely for a purchase price of $1.8 billion (U.S.). Payment will be in the form of a note in the amount of $200 million with the remainder in cash.
The sale is expected to close in the third quarter of 2010, after which Ford will continue to supply Volvo with powertrains, stampings and other vehicle components for differing periods and provide engineering support, information technology, access to tooling for common components, and other selected services during a transition period. The proceeds of the sale will likely go to pay down this debt, although they did not give specific intensions for the proceeds. Ford paid $6.45 Billion for the business in 1999.
What does this sale do for them? They off load a portion of their business that is not doing well. Although Volvo made $188 million in 1Q 2010. Volvo’s May sales were over 16% lower than those of a year earlier and that nearly completely erasing the good start they had in 2010 and probably erased the early gain too. The Volvo business portion also lost $934 million in 2009, $1.690 Billion in 2008 and $2.718 billion in 2007 (accounting for over two thirds of the Ford’s total loses in 2007). They’ve done well in turning the business around to this point, but focusing their attention and resources on other portions of the business makes more sense, as does cutting loses and using proceeds to pay down debt.
On April 6, 2010 they made a $3 billion discretionary repayment on their 2013 senior secured revolving credit facility. They still have about $2.0 billion in debt payable within one year ($1.6 Billion in 2010).
Ford reclassified their remaining ownership in Mazda in 2009 as marketable securities. Although I did not see specific plans to sell their position in Mazda, reclassifying them as Marketable Securities makes me think this is a possibility.
Their Total Cash and Cash Equivalents ($12.8 Billion) and Marketable Securities ($12.5 Billion) in 1Q 2010 totaled about $25.3 leaving them with about $9.0 billion debt balance. The debt load is a concern, but it looks like it might not be as big of a concern as the initial number would indicate. Don’t get me wrong, it’s not something to take too lightly, it cost about $542 million in interest during the first quarter. About $9.7 Billion of the cash equivalents are in “held for sale properties of discontinued businesses” so they have to be sold before they can be used to pay off this debt. It’s not likely they are able to take all the rest of their available cash and apply to the debt either because it’s needed for day-to-day operations. However, they do have enough cash on hand to cover the remaining debt coming due this year (about $1.6 Billion) and they are making money now. Also, these properties that are held for sale have a better chance of selling now.
It will remain to be seen how they continue to handle the rest of their debt, but for a corporation of this size, If they were to get to an actual debt of $9.0 billion I would consider it fairly low.
The Financial Services Divisions debt looks huge, but this debt is probably of a lower concern than the debt in the Automotive Division. This debt is basically financing those that buy or lease a vehicle from Ford, so it is providing income to the Automotive Division. This is usually a great moneymaker because they generally sell this debt at a lower rate than they are charging those that buy or lease the car. As long as those that bought the car are making payments, it provides a steady income stream. The problem came when those that bought cars, weren’t making payments.
So why is this less of a concern than it was when Ford went to get a government loans? The Financial Services Division is now making money again. Ford and Ford Credit have seen substantial increases in their credit rating, and it has continued to improve. Those that are giving these loans now see Ford as a much better risk and the rates are falling because of it, which increases the profit margin they see on existing loans. The economic conditions are better now, as can been seen in the drop in losses on these loans, and the Financial Services division reduced debt by 2.2 billion during the quarter. It looks like they could become the steady income stream they once were again.
Ford overtook Toyota regaining the #2 automaker status in the US last year. All of the US automakers have shown greatly improved sales for the past five or six months.
During the first quarter Ford achieved market leadership in Canada with a market share of 15.5% increasing sales by 29%. Ford increased sales by 14% in the South America region and sold a record 88,000 vehicles in Brazil. Ford was the best selling brand in Europe in March and achieved a 9.4% market share in Europe during the first quarter. Sales were 39% higher in the Asia Pacific Africa region.
According to the May sales report. Ford gained retail market share for the 19th time in the last 20 months. Ford’s US sales were up 23% in May, marking the sixth straight month of sales increases in the US of greater than 20%. Overall sales of Ford models were up over 27.9% over the year ago levels in May and about 33.8% year to date. Sales were higher in May throughout Ford’s lineup as truck sales increased 48%, utilities 18% and cars 9% with year-to-date increases in car sales of 29%, utilities of 30%, and trucks of 34%. The Ford Edge set a May sales record with 13,660 sold, a 43% increase over a year ago and Ford Escape, America’s best-selling utility vehicle saw sales increases of 17%.
Lincoln sales were up about 11.5% over the same year to date period of a year ago, but down 9.5% in May compared to last May’s sales. Mercury sales were up about 11.6 year to date, but down 10.7% in May.
In May Ford, Lincoln and Mercury year-to-date sales totaled 783,845, up 31 percent versus year ago.
In response to higher demand, Ford upped their planned production in the third quarter to 570,000 vehicles in the third quarter, up 80,000 vehicles (16 percent) versus third quarter 2009 and the second quarter plan increased by 15,000 vehicles.
Ford is beginning to add to their workforce again too. The confirmed $400 million investment in Chicago Assembly Plant and the addition of 1,200 jobs to support production of the next-generation Ford Explorer. They’ve also been holding a job fair in Michigan in preparation for expected jobs additions.
Ford began the production of Figo a new small car for India and received 10,000 orders in first month on the market.
The next-generation of America’s best selling trucks began production with new fuel-efficient diesel and gasoline engines for the F-Series Super Duty lineup.
Plans to launch five full electric or hybrid vehicles for European customers by 2013
The new global Ford Focus goes on sale early next year in North America and Europe, and in 2012 for Asia.
Unveiled the new Ford Edge hybrid available for model year 2011.
Plans to begin sales of a luxury car with fuel economy. In an effort to boost Lincoln sales, Ford unveiled the 2011 Lincoln MKZ Hybrid, expected to be America’s most fuel-efficient luxury sedan.
A muscle car with fuel economy the new 2011 Mustang with new V-6 and V-8 engines that deliver more horsepower and improved fuel economy. The new 3.7-liter V-6 achieves 305 hp and is the first production car ever to achieve 300-plus horsepower and 30-plus highway miles per gallon. The new 5.0-liter V-8, offered on the Mustang GT, is at the top of its class with fuel economy of 26-mpg highway and delivers 412 hp.
They announced plans to discontinue the Mercury brand product lines at the end of 2010. Sales of most of the Mercury brands have lagged those of the more popular Ford cars. Discontinuing the Mercury brand will allow them to focus more on the design and building of models that are in higher demand. Ford will continue to provide existing and future Mercury owners with parts and service support at Ford and Lincoln dealers, and honor current warranties and Ford’s Extended Service Plans.
“Overall, Ford said its performance this year is off to a more encouraging start than anticipated. Based on Ford’s improving performance, the gradually strengthening economy, and its present assumptions, Ford now expects to deliver solid profits this year with positive Automotive operating-related cash flow.
“Ford expects full-year 2010 U.S. industry sales will be in the range of 11.5 million to 12.5 million, consistent with the guidance previously communicated by the company.” According to statements found in Q1 2010 earnings report.
“We are seeing the benefits of our One Ford plan around the world,” said Lewis Booth, Ford executive vice president and chief financial officer. “All of our business operations – North America, South America, Europe, Asia Pacific Africa and Ford Credit – were not only profitable, but also showed substantially improved results over a year ago.”
Overall the company looks to have turned the corner. They’ve continued to expand market share in all major markets. They’ve set monthly and yearly sales records on many of their models over the past couple quarters. Debt is high, but it looks like they have a plan to bring it back down to manageable levels. They are divesting in brands and discounting models that are under performing, which will help the bottom line. They continue to make capital investments to improve production and reduce costs. Sales in Europe will likely do well as their version of the “cash for clunkers” is currently underway. The financing arm is showing marked improvement in earnings.
If things continue going right for them, the stock could be topping $25 by the end of 2011.
Don’t forget the military. Ford’s exclusive Military Appreciation Program provides the opportunity to receive a special offer good toward the purchase or lease of any eligible new Ford Car, Truck & SUV through F-550 (Excluding Mustang Shelby GT, Shelby GT 500, Harley and Hybrid Vehicles). See the Ford website for details.
Have a great day trading,
Disclosure: I current do not own any F shares, but have in the past and I probably will in the future.
Disclaimer: This article is intended to provoke thought about investment possibilities. Acting on the information provided is at your own risk. You are urged to do your own due diligence, and where appropriate, seek professional investment advice before acting on any information contained in these articles.