Ford’s Earnings: Good But Could Be Better

Ford Motor ($F) reported earnings this morning of 46 cents per share. That was two cents better than Wall Street’s consensus. This is their tenth-straight quarter of profitability.

Fundamentally this was a solid report, but there were a few weak spots. Let’s go over some of the details. For the quarter, the company netted $1.65 billion which was slightly less than the $1.69 billion from last year’s third quarter. Last year’s per-share result was 48 cents.

Ford’s sales jumped to $33.1 billion which is a 14% increase over last year. That’s a really good number. Wall Street was expecting $30.5 billion. Their share of the U.S. market ticked up to 16.8%. The problem, however, is with profit margins. Due to the plunge in commodity prices, particularly for copper, Ford said that its margins may fall to 5.7%. For me, the key stat is that if you strip out Ford’s losses on copper hedging, their profits rose by 12%.

The odd thing about Ford’s business is that they borrowed a ton of money before the economy fell apart. The good news is that they had the cash to withstand the recession. The bad news is that they still have a ton of debt. The good part, again, is that they’ve been able to pay that down. Ford now has $12.7 billion of automotive debt.

Ford was also hurt by an operating loss in Europe of $306 million. The company also said that it’s not going to start paying a dividend just yet which is probably a smart move.

Overall, I like this report. The basics of Ford’s business are doing well. They were hurt by problems in Europe and by commodity prices, neither of which they can control. Now that the union deal is done and their credit has been upgraded, Ford has shown that it can deliver earnings.

The stock is down today which is probably due to the warnings of lower margins, but that’s not a long-term issue. Ford continues to be a very good buy.

Stay tuned for AFLAC ($AFL) after the close.

Posted by on October 26th, 2011 at 10:06 am

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