How do you lose more than $5 billion -- nearly half the value of your shares (in per-share terms) -- in a single quarter, and not see your stock price savaged? Start out with a stock like Ford (NYSE:F).
You'd have to be hiding under a rock not to have noticed that Ford announced a Q3 loss of $3.08 per share today. The headlines will let you know that this sum is about 21 times worse than last year's $0.15-per-share loss for the same quarter.
Whence the ugliness? Well, it starts at the top. Auto sales were down 6% for the quarter, to $32.6 billion. Sales units were down only 1%, which tells us that Ford is moving product for less money. It not only sold more of its cheaper cars, but also sold its more expensive cars more cheaply. That's what happens when the likes of Honda (NYSE:HMC) and Toyota (NYSE:TM) are eating your lunch.
Add to the top-line woes the following: $861 million worth of employee separation costs. Another $259 million in personnel reduction programs. Oh yeah, and $437 million in pension curtailment charges. That's nearly $1.6 billion in special charges.
Think getting rid of a large chunk of your workforce is expensive? It pales in comparison to the $3.8 billion in asset impairment write-downs Ford took this quarter. Yes, these are technically "non-cash" charges now, but that doesn't mean the company didn't waste the money. It simply means it wasted that money previously, when these now-much-less-valuable assets were purchased.
Any rays of hope? I think so. First off, the pre-tax loss in Europe shrank to a measly $13 million -- down from $55 million in the prior year -- as European vehicle sales improved 14%. South America actually turned in a pre-tax profit of $222 million, on a 25% uptick in auto sales.
Unfortunately, those two segments together amount to just more than half of Ford's North American sales, which sagged 15%.
Here's the question for Foolish investors: Is Ford reaching bottom? We've got a "big bath" in Q3, one that -- based on the stock's lack of movement -- I think Mr. Market has been expecting.
Unlike GM (NYSE:GM), whose management was just described by a waggish colleague of mine as "Goldilocks," I think Ford's got a real turnaround guy at the helm in former Boeing (NYSE:BA) exec Alan Mulally. The recent easing of gas prices could bring more buyers out of the woodwork to latch onto Ford's behemoth SUVs -- the source of recent good times -- but execs aren't counting on that.
Normally, I find earnings-report statements to be as substantial as marshmallow fluff, but I consider Mulally's words on the SUV subject worth noting. "We are committed to dealing decisively with the fundamental business reality that customer demand is shifting to smaller, more efficient vehicles," he said. "Our focused priorities are to restructure aggressively to operate profitably at lower volumes, and to accelerate the development of new, more efficient vehicles that customers really want."
No whining about those darn Japanese. No begging for a helping hand from Unkie Sam. Just the acknowledgement that Ford is bloated and can't compete unless it both slims down and innovates.
That's exactly what happened at Boeing. Right now, a bet on Ford is really a bet on Mulally. I'm beginning to think he'll get the job done.
Value? Or value trap? It's not always easy to tell, which is why we've got a team dedicated to that task. A free trial of Motley Fool Inside Value is just a click away.
At the time of publication, Seth Jayson had no position in any company mentioned here. View his stock holdings and Fool profile here. See what he's Digging these days. Fool rules are here.
