Ford's Better Idea: Making Money

Almost exactly a year ago, in an article asking readers to talk me out of the seeming insanity of buying Ford (NYSE: F  ) stock, I wrote this sentence:

Ford itself says it's hoping to break even in 2011 -- and that's the optimistic case.

As it turned out, it wasn't optimistic enough.

This morning, Ford announced its fourth-quarter and year-end numbers. I'll get to the details in a minute, but here's the bottom line: For 2009, the company earned $2.7 billion, versus a loss of $14.7 billion a year ago. That's its first full-year profit since 2005 -- and not because of accounting tricks or gimmicks, either.

That, folks, is what we call a pretty good start on a turnaround.

The nuts and bolts
The quarterly numbers are solid -- net income of $868 million, or $0.25 a share, versus a loss of $5.98 billion, or $2.51 a share, in the fourth quarter of 2008. Looking at the major business units, we see pre-tax operating profits that look like this:

  • North American automotive: $707 million, compared with a loss of $1.9 billion a year ago
  • South America: $369 million, compared with a profit of $105 million a year ago
  • Europe: $305 million, compared with a loss of $338 million a year ago
  • Asia Pacific Africa: $19 million, compared with a loss of $208 million a year ago
  • Ford Credit: $696 million, compared with a loss of $372 million a year ago

That's not just paper growth, either. Ford gained market share in North America, South America, and Europe, and held its ground in Asia. As Ford put it in the company's press release, "The increase is more than explained by higher volumes and favorable net pricing."

Margins are up, the product pipeline looks very strong, the company has reduced "automotive structural costs" by $5.1 billion in 2009 -- the turnaround plan called for $4 billion -- and it has $25.5 billion in "Automotive gross cash" in the bank.

Things are looking good enough that management has reinstated the 401(k) match and profit-sharing for hourly employees. Given more and more signs that consumers are starting to spend again -- as I was writing this, consumer bigwigs Procter & Gamble (NYSE: PG  ) , Green Mountain Coffee Roasters (Nasdaq: GMCR  ) , and Colgate-Palmolive (NYSE: CL  ) all posted better-than-expected sales -- Ford, with its strong products, positive press, and increasing sales momentum, looks ideally positioned to take advantage.

What's not to like?

I'll tell you what's not to like
We can't discuss Ford without discussing the enormous, smelly elephant in the living room: This company isn't just carrying debt -- it's mortgaged to the hilt. Ford has $34.3 billion worth of automotive debt as of the end of 2009, thanks to the mortgage-everything plan CEO Alan Mulally enacted shortly after arriving at Ford from Boeing (NYSE: BA  ) .

The company continues to work on structuring that debt to keep it manageable -- during the fourth quarter, Ford issued $2.9 billion in a convertible debt offering and extended the maturities of $7.9 billion worth of revolving debt from 2011 to 2013. From all appearances, management is being as smart about debt management as it is about the other phases of its business. As long as the company (and the economy) doesn't stumble in a big way, the debt is unlikely to precipitate a crisis.

But it does add to the risk of Ford as an investment. And even if everything goes according to plan, that debt will be a drag on profits, and on cash available to spend on product development, for years to come.

That said …
Still, I'm awfully glad that readers didn't talk me out of buying Ford when it was cheap last year. It has been a seven-bagger for me so far -- how often do you see that in a 100-year-old industrial behemoth? -- and I hope some of you bought in as well.

If not, it might not be too late. While real concerns remain, I think Ford still has some room to run.

Fool contributor and lifelong gearhead John Rosevear owns shares of Ford and of Green Mountain Coffee Roasters, and is feeling really pleased about both of those right now. Green Mountain Coffee Roasters is a Motley Fool Rule Breakers selection. Ford is a Motley Fool Stock Advisor pick. Procter & Gamble is a Motley Fool Income Investor choice. The Fool owns shares of Procter & Gamble. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.


Read/Post Comments (8) | Recommend This Article (21)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 28, 2010, at 5:20 PM, Mariam117 wrote:

    So whatya think about GMCR now???

  • Report this Comment On January 28, 2010, at 9:15 PM, TMFMarlowe wrote:

    I haven't had a chance to look at today's numbers yet, but it does seem to be rather fully valued.

    Thanks for reading.

    John Rosevear

  • Report this Comment On February 16, 2010, at 3:40 PM, mtracy9 wrote:

    Ford has a lot of room to run. The auto industry is a cyclical one. Cars wear out and must be replaced. In 06 and 07 cars sales were on trend in the U.S. at about 16 million. With the recession, car sales dropped to 13.1 million in 08 and 10.4 million in 09. This means that the U.S. market is currently about 8 to 9 million cars under trend. With slow sales again predicted for this year expect this number to rise above 10 million -- a huge number. However, people cannot afford to put off buying cars forever. Look for the new car market to begin to explode in the U.S. around 2011 or 2012 as people replace their vehicles. If Ford is doing this well with the economy still in the skids, imagine how well it will be doing in a couple of years.

  • Report this Comment On February 16, 2010, at 3:41 PM, mtracy9 wrote:

    Ford has a lot of room to run. The auto industry is a cyclical one. Cars wear out and must be replaced. In 06 and 07 cars sales were on trend in the U.S. at about 16 million. With the recession, car sales dropped to 13.1 million in 08 and 10.4 million in 09. This means that the U.S. market is currently about 8 to 9 million cars under trend. With slow sales again predicted for this year expect this number to rise above 10 million -- a huge number. However, people cannot afford to put off buying cars forever. Look for the new car market to begin to explode in the U.S. around 2011 or 2012 as people replace their vehicles. If Ford is doing this well with the economy still in the skids, imagine how well it will be doing in a couple of years.

  • Report this Comment On March 19, 2010, at 9:19 PM, Mystone wrote:

    Hi John,

    I know I'm a little late on commenting on this article, but maybe you can explain something about Ford's profit last year. I was looking at the financials listed on Fools site for Ford and I noticed a few things about the accounting (assuming Fools snapshot of Ford's financials is accurate):

    2009 Net Inc. - 2,717.00 2008 Net Loss - (14,672.00)

    Net income increase of $17.4 Billion Dollars in one year...

    Dec 2009 Total Income Before Interest Expenses (EBIT) 10,099.00

    Dec 2008 Total Income Before Interest Expenses (EBIT) (3,967.00)

    Looks like this is where something changed to make up the bulk of the difference from 2008 to 2009. Now it looks like they cut back on selling, admin, expenses by about $8B. That makes sense. They went from reporting $0 dollars of interest income in 2008 to over $5B in interest income in 2009.. Curious where this $5 billion dollars worth of interest income miraculously appeared from. Not to mention without it they would be in the red for the year.. The last biggest oddity on the sheet is the depreciation... Last three years before 2009, Ford has been reporting $12B, $13B, and $16B in this column. However in 2009, Ford's big turnaround year, they stop reporting depreciation/amorization altogether... If you factor in this expense like last year, even if it was lowered to $10B (to keep with the trend), Ford would be showing a net loss of around $8 billion or so.

    Now I saw your comment, "That's its first full-year profit since 2005 -- and not because of accounting tricks or gimmicks, either." However, I'm perplexed by the way the financials look on paper. Was there in fact accounting gimmacks that took place to go from $14B losses to $2.7B income (a $17.4 Billion Dollars increase)? Please help me to understand this if I'm looking at it wrong or if the financials posted by Fool is not accurate. I did see your recent article about their looming $34B debt. That is a worthy notion to consider before dropping anymore money on this ticker.

    Ford's income statement:

    http://caps.fool.com/Ticker/F/Statements.aspx?source=icasitt...

  • Report this Comment On March 19, 2010, at 9:20 PM, Mystone wrote:

    Hi John,

    I know I'm a little late on commenting on this article, but maybe you can explain something about Ford's profit last year. I was looking at the financials listed on Fools site for Ford and I noticed a few things about the accounting (assuming Fools snapshot of Ford's financials is accurate):

    2009 Net Inc. - 2,717.00 2008 Net Loss - (14,672.00)

    Net income increase of $17.4 Billion Dollars in one year...

    Dec 2009 Total Income Before Interest Expenses (EBIT) 10,099.00

    Dec 2008 Total Income Before Interest Expenses (EBIT) (3,967.00)

    Looks like this is where something changed to make up the bulk of the difference from 2008 to 2009. Now it looks like they cut back on selling, admin, expenses by about $8B. That makes sense. They went from reporting $0 dollars of interest income in 2008 to over $5B in interest income in 2009.. Curious where this $5 billion dollars worth of interest income miraculously appeared from. Not to mention without it they would be in the red for the year.. The last biggest oddity on the sheet is the depreciation... Last three years before 2009, Ford has been reporting $12B, $13B, and $16B in this column. However in 2009, Ford's big turnaround year, they stop reporting depreciation/amorization altogether... If you factor in this expense like last year, even if it was lowered to $10B (to keep with the trend), Ford would be showing a net loss of around $8 billion or so.

    Now I saw your comment, "That's its first full-year profit since 2005 -- and not because of accounting tricks or gimmicks, either." However, I'm perplexed by the way the financials look on paper. Was there in fact accounting gimmacks that took place to go from $14B losses to $2.7B income (a $17.4 Billion Dollars increase)? Please help me to understand this if I'm looking at it wrong or if the financials posted by Fool is not accurate. I did see your recent article about their looming $34B debt. That is a worthy notion to consider before dropping anymore money on this ticker.

    Ford's income statement:

    http://caps.fool.com/Ticker/F/Statements.aspx?source=icasitt...

  • Report this Comment On March 19, 2010, at 9:23 PM, Mystone wrote:

    Hi John,

    I know I'm a little late on commenting on this article, but maybe you can explain something about Ford's profit last year. I was looking at the financials listed on Fools site for Ford and I noticed a few things about the accounting (assuming Fools snapshot of Ford's financials is accurate):

    2009 Net Inc. - 2,717.00 2008 Net Loss - (14,672.00)

    Net income increase of $17.4 Billion Dollars in one year...

    Dec 2009 Total Income Before Interest Expenses (EBIT) 10,099.00

    Dec 2008 Total Income Before Interest Expenses (EBIT) (3,967.00)

    Looks like this is where something changed to make up the bulk of the difference from 2008 to 2009. Now it looks like they cut back on selling, admin, expenses by about $8B. That makes sense. They went from reporting $0 dollars of interest income in 2008 to over $5B in interest income in 2009.. Curious where this $5 billion dollars worth of interest income miraculously appeared from. Not to mention without it they would be in the red for the year.. The last biggest oddity on the sheet is the depreciation... Last three years before 2009, Ford has been reporting $12B, $13B, and $16B in this column. However in 2009, Ford's big turnaround year, they stop reporting depreciation/amorization altogether... If you factor in this expense like last year, even if it was lowered to $10B (to keep with the trend), Ford would be showing a net loss of around $8 billion or so.

    Now I saw your comment, "That's its first full-year profit since 2005 -- and not because of accounting tricks or gimmicks, either." However, I'm perplexed by the way the financials look on paper. Was there in fact accounting gimmacks that took place to go from $14B losses to $2.7B income (a $17.4 Billion Dollars increase)? Please help me to understand this if I'm looking at it wrong or if the financials posted by Fool is not accurate. I did see your recent article about their looming $34B debt. That is a worthy notion to consider before dropping anymore money on this ticker.

    Ford's income statement:

    http://caps.fool.com/Ticker/F/Statements.aspx?source=icasitt...

  • Report this Comment On December 16, 2010, at 7:00 AM, jenniwinslet wrote:

    FORD must be doing something right. I've been buying Honduh for the last 20 years. Never thought I would ever consider a Ford. But we're shopping for one right now! Good on them for realizing the problems and fixing it (literally).

    http://www.usavehiclehub.com/trucks/

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