Will Ford Report a Huge Quarter?


Ford won't officially release its fourth-quarter and full-year 2012 earnings until Jan. 29, but that hasn't stopped Wall Street from trying to guess how the Blue Oval has been doing as of late.

If those guesses are even close, Ford has been doing quite well: The consensus analyst estimate for Ford's fourth-quarter earnings is 26 cents a share, according to Bloomberg, up from a somewhat disappointing 20 cents in the year-ago quarter.

If that pans out, it would be a nice new year's gift for shareholders. And while Ford can't officially say anything substantive until its full earnings are released, the company has dropped a few hints suggesting that the news could be quite good.

Good omens for good profits
One big hint came last week, when Ford's board of directors declared a 10-cent dividend for the first quarter - double the 5 cents paid in recent quarters. In a statement, the company said that its "strong balance sheet, increased liquidity and positive business performance" drove the decision to give shareholders a big raise.

That was, to steal a tag line, a "Bold Move." Ford's board has been conservative with dividends despite strong profits - the company's dividend yield (based on the old 5-cent rate) is just 1.4% at current prices, well below that of many similarly healthy industrial firms. It's not hard to understand why the board has been cautious: Ford was buried under a mountain of debt just a few years ago, and maintaining a solid cash hoard has been a high priority since its recovery.

That's not the only clue, however. Ford executives speaking with reporters at the North American International Auto Show in Detroit have had a hard time concealing their glee. Yesterday, CFO Bob Shanks described the last nine months as "wonderful" in terms of margins, profitability, and cash flow, according to Bloomberg.

Executive Chairman Bill Ford has shared similar views, telling Reuters that "the company is performing very well" and suggesting that the board's decision to hike the dividend was a "signal of confidence" in the company's direction.

As if that wasn't enough, Ford's recent sales results tell a similar story.

The profitable power of pickups
Back at the beginning of January, I noted that Ford's pickup sales have been strong - despite the fact that the Blue Oval had not resorted to the heavy incentives often used to prop up truck sales. That's important, because pickups are a big driver of profits for Ford in North America.

That's a good thing, because North America has been carrying the company in recent quarters - a trend I expect to see reappear in the company's upcoming earnings report. While Ford's sales in China have been strong, profits in Asia are likely to once again be offset by the big ongoing investments that Ford is making to expand its presence in the region by mid-decade.

Meanwhile, Ford's troubles in Europe are likely to continue for (at least) a few more quarters. Losses have been steep: Ford said in October that its losses in Europe would likely exceed $1.5 billion for 2012, and 2013 was expected to be "similar." The company lost $468 million in the region in the third quarter alone. Ford does have a (good) plan to restructure its European operation in a hopefully sustainable way, but the unit isn't expected to reach breakeven for at least a couple of years.

The upshot: Expect a strong quarter
What the hints from Shanks and Bill Ford suggest (to me at least) is that Ford has been able to sustain its fat North American margins. Ford's margin in its home region was 12% in the third quarter, well above industry norms, thanks to its strong product lineup (which has given it strong pricing power).

Ford's COO (and CEO heir-apparent) Mark Fields made headlines in November when he suggested that those fat margins probably weren't sustainable. Shareholders should take that warning seriously: While Ford's product line has some big strengths relative to key competitors like General Motors and Toyota at the moment, and Ford's very high rate of capacity utilization has given it a short-term fixed-cost advantage, both of those are likely to come under some pressure in coming quarters.

Still, as Ford works to ramp up its Asian presence and overhaul Europe, hints that the North American boom times will continue have to be welcome news for the Blue Oval's shareholders.

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