Ford Shares Tank on Worse-Than-Expected Earnings Results

Ford Shares Tank on Worse Than Expected Earnings Results
Ford Shares Tank on Worse Than Expected Earnings Results

Shares of Ford Motor (F) headed sharply lower after the company released disappointing quarterly earnings on Friday. In midday trading on the New York Stock Exchange, Ford stock was down 13.5% to $16.31 a share, as investors reacted to news about higher commodity prices and other expenses that resulted in the company reporting earnings about 18 cents-per-share lower than analyst expectations.

Excluding one-time items, the Dearborn, Mich.-based automaker posted an operating profit of 30 cents a share in the fourth quarter, well below the 48 cents analysts had forecast.

The quarterly results marked the first time Ford fell short of Wall Street profit forecasts in two years, Reuters reported. "Anything that comes out that's a tad disappointing, even if it's a tad disappointing inside a great story, is going to be punished," Bernie McGinn, chief investment officer at McGinn Investment Management, told the news agency.

The point wasn't lost on CEO Alan Mulally and Chief Financial Officer Lewis Booth during a conference call with investors and the media shortly after earnings were released. Both executives said the company needs to do a better job at providing earnings guidance to the investment community.

"We felt like we provided some very good information on the fourth quarter," Mulally said, adding that the miscommunication would "[motivate] us to further help people really understand where we going in the future."

Miscalculations on Europe, Commodities

Ford's earnings fell short in part due to expectations that Ford's European operations would turn a profit in the fourth quarter. That turned out not be the case. The company reported it lost $51 million in Europe during the three months that ended December as Ford's share of the market declined to less than 8% from nearly 9%.

The drop was a result of Ford's decision to not discount vehicles to boost sales in some regions, as well as the discontinuance of some European nations' so-called scrappage programs -- similar to the U.S.'s "cash for clunkers" rebate program in 2009, which had helped boost small-car sales in Europe, Mulally said.

The rising costs of commodities such as steel also pulled Ford's earnings down. Ford's costs increased by more than $1 billion in the fourth quarter compared to the previous quarter, subtracting profit of about $860 for every car and truck it sold, Reuters noted.

Overall quarterly earnings were also hurt by Ford's decision to spend more on new-product introductions, including the 2011 Ford Explorer sports-utility vehicle, which went on sale in the U.S. last month. Mulally said the company increased outlays for advertising and marketing as the end of 2010 neared "because we saw a real opportunity to get these products off to a great start."

Profit-Sharing Bonuses for 40,600 Workers

The fallout from the disappointing earnings overshadowed an otherwise upbeat report from Ford, which reported its best annual profit in a more than decade -- $6.6 billion. The automaker also saw its share of the overall U.S. car market rise to 16.4%, 1.1 percentage points higher than in 2009.

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Ford said as a result of its financial performance in 2010, some 40,600 U.S. full-time hourly employees would be eligible for profit-sharing payments of about $5,000.

The company also boosted its estimates for overall U.S. sales of cars and light trucks to an industry total of 13 million to 13.5 million, up from previous forecasts of 12.5 million. Ford also raised its expectations of its North American production in the current quarter to 650,000 from 635,000.

Ford said it reduced its debt by $14.5 billion in 2010, cutting its annual interest costs by more than $1 billion. Mulally said improving the company's balance sheet remains a priority, but he wouldn't speculate about how long it would take the company to again return to an investment-grade credit rating.

Ford last had an investment-grade rating in 2005, a year before it mortgaged most of its assets to borrow $23.5 billion to finance its restructuring plan. The decision to take on massive debt gave Ford a head start on revamping its business and helped it avoid the stigma of government ownership that looms over rivals General Motors (GM) and Chrysler Group.

Ford was the only Detroit Three automaker to avoid a government bailout in the aftermath of the 2008 financial crisis.

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