How bad is it to be William Clay Ford Jr., anyway? Well, not really bad. But the owner of the Detroit Lions has seen nothing but troubled times from his team lately, including a 2-3 record, a one-point loss at home to Carolina last week, and a budding quarterback controversy. The agony!
Oh, and before I forget, there's also this little thing with the car company his family owns. Yeah, it's losing money. Lots of money. Ford's (NYSE: F ) third-quarter earnings report was miserable by any measure.
Inside the numbers
Let's start with the basics. Sales were up 4.4% to $40.9 billion, from $39.1 billion in last year's third quarter. But that didn't help on the bottom line. There, Ford lost $284 million, down from a $266 million profit in the year-ago period. Per share, the automaker lost $0.15; last year at this time, it had booked $0.15 in profits.
It's an awful turnaround that can be at least partially explained by bailouts. For example, Ford spent $180 million during the quarter to take a bullet for Visteon (NYSE: VC ) , its former parts supplier. The Detroit Free Press reports that Visteon-related charges are expected to cost Ford as much as $625 million this year, while saddling the firm with more than 20 unwanted plants that it will need to sell off.
One-timing the one-timers
Still, one-time charges (more on this later) only contributed $0.06 per share to the quarter's loss. The bigger issue is the ailing auto business. Overall, the unit more than doubled its pre-tax loss year over year to $1.3 billion. Ford attributes the decline to "lower dealer inventories, unfavorable vehicle mix, lower net pricing, and higher warranty and material costs." Did I mention that this gaping loss includes a one-time $240 million benefit from a settlement with Bridgestone over the 2000 safety recall of certain Firestone tires? Yeesh.
I could go on and on, but there's only so much room to write -- yeah, even in the virtual world -- so let's close this section with what may be the worst stat I've ever seen. The decline of Ford's core auto business can be traced directly to its inability to price its products effectively, or the market's unwillingness to accept their prices. Consider: In Q3, while global auto sales were up 5.7%, operating expenses for the division were up 8.4%.
Got that? For every six cents it made in new car sales, Ford was spending nine. I'd like to say this is news, but it isn't. The finance group has been papering over losses in the auto group for a while now. It just didn't make enough this time around.
Not surprisingly, Ford now plans deep cuts for the second time since 2002. I have my doubts it will work, but that won't stop the automaker from trying. The restructuring will be announced in January, and it's expected to affect staff at all levels of the company. Benefits, including health care, could also take a hit. That shouldn't come as a surprise, considering that the ink isn't even dry on the dealGeneral Motors (NYSE: GM ) and the United Auto Workers recently struck to trim health-care costs.
Speculation abounds, but there's no way to say for sure how much Ford will cut or how deep the cuts will go. It's worth noting, however, that $700 million had already been set aside for personnel reductions. The Free Press reports that many layoffs could come in the next three months, as Ford continues its plan to cut 2,750 white-collar jobs.
Tired yet? Hang in there, because we're almost done. Check out the first three sentences of the earnings announcement (emphasis mine):
"Ford Motor Company today reported a net loss of $0.15 per share, or $284 million, for the third quarter of 2005. This compares with net income of $0.15 cents per share, or $266 million, in the third quarter of 2004. Ford's third-quarter loss from continuing operations, excluding special items, was $0.10 per share, or $191 million, compared to a profit of $0.27 per share, or $515 million, in the same period last year."
Special items, hmmmmm? Interesting, especially when you compare that opening with this one, from the earnings release of another major firm that reported results on Wednesday:
"Company A today reported a net loss of $153 million for the third quarter, or $0.93 per share fully diluted. The loss includes a net $58 million negative impact of two special items -- an $80 million charge for a contract termination and a $22 million credit for the reversal of an insurance reserve. Without these special items, Company A would have recorded a net loss of $95 million, or $0.58 per share."
Notice anything? Yep, it's those special items again. Or, in corporate-speak: Bad stuff that we think is no longer relevant and undeserving of your attention.
Just another airline
In case you're wondering, the issuer of that second release was AMR (NYSE: AMR ) , parent of American Airlines. I draw the comparison because ailing business models and "special items" are also relatively common in the airline industry. It's not like these are the only similarities, either. Both sell commodity products, both are being killed by high fuel prices, both have underfunded pensions and/or spiraling health care obligations, and neither has succeeded in raising prices. Don't bet on any of that changing in the near future, either.
So, please, before you go investing in Ford on the faint hope that it might present a value, look at the results and remember the airlines. Then put your money to a better use by participating in our annual Foolanthropy drive. You'll be doing the world, and your portfolio, a favor.
We brake for related Foolishness:
- You've seen the analysis; now get the numbers.
- Think Ford's bad? Check out GM. Yuck.
- And it doesn't end there. Consider Dana (NYSE: DCN ) and its beleaguered and bankrupt rival Delphi.
- Is there any good news? Maybe, if Ford can get small.
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Fool contributor Tim Beyers owns a Mercury SUV and a Toyota minivan, but he doesn't own stock in either company, or any other firm mentioned in this story. You can find out what's in his portfolio by checking Tim's Fool profile. The Motley Fool has an ironclad disclosure policy.