Ford Earnings Hint at Loss of Momentum

Net income up but operating profit fell for the fourth quarter.

by on Jan.27, 2012

Ford CEO Alan Mulally and Chairman Bill Ford.

Ford Motor Co.’s comeback slowed in the fourth quarter as a 21% decline in core automotive business drove down operating profits at a time when the overall U.S. auto industry was showing signs of renewed strength.

For the full year, the second largest of the Detroit automakers reported a pre-tax operating profit of $8.8 billion, an increase of $463 million from a year ago, as strong performances in North America and Ford Credit offset challenges in other parts of the world, the company said.  This marks the company’s third year in a row of improving annual operating profits.

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“We delivered strong results for the full year as we continued to serve our customers around the world with best-in-class vehicles and made progress toward our mid-decade goals,” said Alan Mulally, Ford president and CEO. “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,” he said.

Total automotive pre-tax operating profit in the fourth quarter was $586 million, a decrease of $155 million from fourth quarter 2010.

The decrease is explained by higher costs, including higher commodity costs, higher compensation costs in North America related to the new UAW agreement (including the one-time ratification bonus), and unfavorable exchange rates. This was offset partially by favorable net pricing and volume and mix, Ford’s fourth quarter financial report said.

The full-year pre-tax operating profit was $6.3 billion, an improvement of $1 billion. Strong performance in North America and a solid profit in South America offset declines in Asia Pacific Africa and Europe.
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.

Full-year 2011 net income reached $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 releasing $12.4 billion of 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 Ford-Sollers joint venture, which began operations on Oct. 1, 2011.

As a result of Ford’s 2011 financial performance, the company will make profit sharing payments to approximately 41,600 eligible U.S. hourly employees. In accordance with the formula in the UAW-Ford collective bargaining agreement, Ford’s North American pre-tax profits of $6.2 billion will generate approximately $6,200 per eligible employee on a full year basis.

Based on first-half 2011 results, the formula generated approximately $3,750 per employee, which was distributed in December 2011. For the second half of 2011, the formula generated approximately $2,450 per employee, which is planned to be distributed in March. Individual profit sharing payments will be higher or lower based on each employee’s compensated hours.

Ford generated positive automotive operating-related cash flow of $700 million in the fourth quarter and $5.6 billion in the full year, an improvement of $1.2 billion from full year 2010.

Ford finished the year with automotive gross cash of $22.9 billion, compared with automotive gross cash of $20.8 billion as of Sept. 30, 2011, and $20.5 billion as of Dec. 31, 2010.

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