Ford's annual profit hits 10-year high, but stock plunges over disappointing fourth quarter

Ford shares plummet 12% in midday trading after its quarterly earnings disappoint investors. The automaker reported a 2010 profit of $6.6 billion, a 141% increase over the previous year, due to cost-cutting, better vehicles and a strengthening economy.

By Jerry Hirsch, Los Angeles Times
January 28, 2011, 10:17 a.m.

Despite posting its best annual profit in 10 years Friday, shares of Ford Motor Co. plunged 12% in midday trading after the company's fourth-quarter profit fell short of Wall Street's expectations.

The automaker's net income dropped to $190 million, or 30 cents a share excluding one-time items, from $886 million, or 43 cents a share, in the same period a year earlier. Analysts had expected the company to earn 48 cents per share. Revenue dipped 6.6% to $32.5 billion. The shares fell $2.19 to $16.60.

Still, the disappointing earnings don't mark the end of Ford's gains coming out of the recession, said Efraim Levy, an analyst with Standard & Poor's Equity Research.

"Ford is going to do better this year because of rising U.S. and global demand," Levy said.

The lower profit came from a $1-billion increase in expenses in Ford's North American business compared to a year ago. Ford attributed the higher spending to the new vehicle launches, higher raw materials expenses and the recent large recall of Ford Windstar vans. The company also had a $960-million charge related to a debt conversion transaction that slashed Ford's borrowings by nearly $2 billion.

Additionally, Ford previously said its European operations would be profitable in the fourth quarter but wound up with an operating loss of $51 million.

"We recognize that we missed concerning people's expectations," said Lewis Booth, Ford's chief financial officer. However, he said Ford expects improvements in both profits and cash flow this year.

Investors now need to figure out whether "the large cost increases are essentially one-time items" or whether they "represent permanently higher spending levels needed to support a higher volume of business in a more expensive commodity environment," said Brian Johnson, an analyst at Barclays Capital.

Notwithstanding the fourth-quarter speed bump, Ford posted its best annual profit in 10 years, aided by long-term cost-cutting, improved vehicles and a slowly strengthening economy.

The automaker said it earned $6.6 billion, a 141% increase from $2.7 billion in 2009. Revenue rose 4% to $120.9 billion. The company lost $30 billion from 2006 through 2008.

The gain was big enough to trigger profit-sharing checks averaging $5,000 to 40,600 hourly workers under the company's United Auto Workers union contract.

"Our 2010 results exceeded our expectations, accelerating our transition from fixing the business fundamentals to delivering profitable growth for all," said Alan Mulally, Ford's chief executive. "We are investing in an unprecedented amount of products, technology and growth in all regions of the world."

The dramatic nature of Ford's turnaround was evident in posting its best profit in years in the face of a U.S. auto market that still accounted for only 11.6 million vehicle sales last year, the second lowest total since 1982. And the profit was better than each of the boom years of 2001 through 2007, a time when the auto industry consistently sold 16 million to 17 million vehicles.

"Ford is on solid footing. The fact that they are in such healthy shape and at what are still relatively low sales levels is remarkable," said Jeremy Anwyl, chief executive of, the auto information company.

Ford finished the year with more cash in its automotive operations -- $20.5 billion --- than it had debt of $19.1 billion. After borrowing heavily in recent years to restructure its operations, Ford slashed the debt by 43%, or $14.5 billion in 2010. The pay-down has trimmed Ford's interest expenses by about $1 billion annually, the company said.

Mulally said that Ford's improved financial standing is a result of its "One Ford" plan to place a "laser focus" on growing the Ford brand, to offer a full range of vehicles so that the company was not as dependent on sales of large trucks and SUVs, to use global manufacturing and design scale to make its autos less expensive to produce and to push every new vehicle "to be the best in its class in terms of fuel efficiency and design."

To that end, Ford scuttled its lackluster Mercury division and sold off its Volvo subsidiary. And the company has taken a global development approach to its vehicle design. The new compact Ford Focus about to roll out in the U.S. is built on a platform that can support sales of 2 million vehicles in 10 different versions, including sedans, hatchbacks, station wagons and SUVs.

Such global planning is especially important considering that 60% of the world's auto market is made up of compact cars the size of Ford's new Fiesta and Focus models," Mulally told The Times earlier this month.

"That is the center of the market and whoever has that scale to drive the price down will be successful…. We can no longer think of Ford being a domestic or Big 3 company. Ford is a global automaker," he said.

In the U.S. market, Ford is selling more autos and get getting more money for them. It's average transaction price rose 7.7% to $30,313, according to At the same time, it reduced what it paid out in incentives by 4.5%.

"This is just common sense. Make money on what you sell and you will be profitable," Anwyl said. "They have trimmed out a lot of costs and also have cleaned up their act with product. The new vehicles can stand on their own without incentives."

Ford cars are also getting consideration from a wider number of shoppers, and that's led to sales gains in the U.S., Mulally said.

"People are moving to Ford from all the brands," he said.

The company's core Ford brand had sales of just under 1.8 million vehicles in 2010 and outsold Toyota for the first time since 2006. Altogether, the Ford, Lincoln and Mercury lines sold more than 1.9 million vehicles in the U.S. last year, a 19.5% gain and well above the industry's 11.1% increase.

Ford's overall share of the U.S. market rose to 16.7% from 15.5% in 2009. The automaker's market share is the highest since 2005.

Ford also improved the quality of its vehicles.

According to J.D. Power & Associates' 2010 Vehicle Dependability Study, Ford vehicles suffered from 141 problems per hundred vehicles, well below the industry average of 155 and just between Honda and Mercedes-Benz. Ford's Lincoln luxury autos ranked second behind only Porsche with 114 problems per 100 vehicles.

Ford ranked 10th of 27 brands in Consumer Reports' reliability assessment of 2011 models. ... 1045.story