I don't normally like to give the Detroit spinmeisters much of a free pass on their corporate doublespeak at earnings time, but I'm sorely tempted to with Ford (NYSE:F) and its full-year results. After all, Ford's had a tough year, so maybe we can forgive exaggerated self-descriptions such as "Solidly Profitable."
With sales slumping and competitors such as Toyota (NYSE:TM) and Honda (NYSE:HMC) nibbling away at market share, Ford's "third consecutive year of profitability" was boosted by such nonrepeatable gains as the $1.5 billion sale of Hertz.
Let's get the official numbers out of the way: Net income this year came to $1.04 per share, versus $1.73 the year before. Other than that big slide, which would have been bigger had Ford not been heating its house by throwing the furniture in the fireplace, I suppose things could have been worse.
Global auto revenues rose 5%. Unit sales were up, but by a slim 20,000 units atop a base of 6.8 million. The worst news, as expected, was in the Americas, where Ford lost $1.2 billion before taxes, compared with a profit of $1.6 billion the prior year. North American automotive operations turned in a $1.6 billion loss for the year. Even the financial-services section, the only source of profit in this part of the hemisphere, saw its contributions to the cause shrink, with a $4.4 billion pre-tax profit compared with $5 billion the year before.
Of course, I thought I saw the writing on that wall long ago, when I noticed that Ford was using clever maneuvers in its financing wing to boost profitability while continuing its brutal price wars with GM (NYSE:GM), DaimlerChrysler (NYSE:DCX), and anyone else selling a competing product. For what it's worth, Ford's provision for credit and insurance losses in 2005 was $483 million, versus $1.2 billion the year before. Again, since I feel sorry for Ford, I'll try not to oversnark this, but reducing credit-loss set-asides by more than half on nearly the same volume of financial services revenue ... well, that's not what I'd describe as earnings power.
But, hey, maybe this is all old news, right? After all, we also got the "Way Forward," the laying-off-30,000-workers, shuttering-14-plants plan that Ford announced at the same time.
Of course, swinging the ax is all the rage these days. DaimlerChrysler just announced a big set of white-collar layoffs that mirror the ones Ford announced previously. Unfortunately, it's far too soon to speculate on whether Ford's ambitious plans will amount to value for investors. Is the ax being wielded with adequate precision? Will the grand plans for the "competitive cost structure" and its $6 billion in net material cost reductions work out? Will Ford be able to get productivity improvements at the plants that remain or the proposed new site?
From this prospective investor's perspective, Ford is the least troubling of the potential value plays in the space, because the balance sheet looks healthier, but most of all because management seems to realize that it has to make hard decisions. (At GM, Wagoner's taken his blame game public, a move that suggests to me that the right decisions aren't forthcoming there, at least not from the present management.)
However, I'm content to watch for signs of real change before adding these shares to my distressed turnaround list. That may mean giving up some easy money and hitching on during a ride up. But with a Titanic, difficult-to-turn company like Ford, I'm less concerned with catching the absolute bottom than with making sure there isn't another bottom out there that's closer to zero.
For related Foolishness:
- Look at Ford by the Numbers.
- How great is Ford's gain?
- Dana's stuck in neutral.
Seth Jayson loves his Ford truck, but he doesn't think that's much of an investment thesis. At the time of publication, he had no positions in any company mentioned. View his stock holdings and Fool profile here. Fool rules are here.
