Ford Motor Caps Worst Year Ever With $5.8 Billion Quarterly Loss
FordMotor capped the worst year in its 103-year history with a wider-than-expected fourth-quarter loss and said it would cut production this quarter and lose market share through September.
The No. 2 U.S. automaker posted a fourth-quarter net loss of almost $5.8 billion, or $3.05 a share, on declining truck sales and charges for employee buyouts. That compared to a loss of $74 million, or 4 cents a share, a year ago.
The loss from continuing operations was $1.10 cents a share, which was deeper than the average Wall Street analyst expectations of a loss of $1.01 a share, according to Thomson Financial.
For the full year, Ford posted a record loss of $12.7 billion, leaping past the company's previous record net loss of $7.39 billion in 1992 when the industry was reeling from a recession in the U.S. economy.
Ford, like its Detroit-based rivals, was hit hard in 2006 as high gas prices and interest rates drove consumers away from the trucks and sport utility vehicles that had accounted for most of its sales and profits.
"The Explorer and F-Series were both down significantly, and those were high-volume products with the best margins in Ford's portfolio," Argus Research analyst Kevin Tynan said.
Burning Less Cash
Despite its record loss, analysts said Ford had burned through less cash in its troubled auto operations than expected in the past quarter, an outcome some called encouraging.
"For the foreseeable future, the Ford story is less about quarterly (earnings) and more about liquidity, cash flow, and restructuring," Bear Stearns analyst Peter Nesvold said in a note for clients.
Ford's auto operations burned through $1.8 billion in cash in the fourth quarter, less than the $3 billion Nesvold said he had expected.
J.P. Morgan analyst Himanshu Patel also said that while analysts might lower 2007 forecasts for Ford after the fourth quarter result, the "market may be comforted by what seems like a better-than-expected cash burn."
Ford, which is in the early stages of a four-year turnaround plan that includes closing 16 plants and cutting up to 45,000 jobs, said charges reduced fourth-quarter results by $3.7 billion after taxes, or $1.95 per share.
Ford said its U.S. market share would fall through the third quarter as it pulls back from sales to car rental companies and other fleet operators. It ended 2006 with a market share of just over 17%.
The Dearborn, Michigan-based automaker also said production would be down through the first half of the year but rise year-over-year in the second half.
New Production Targets
Ford cut its previously announced first-quarter production target in North America by 10,000 units to 740,000 vehicles, a 15.5% decline from the same quarter a year ago.
Fourth-quarter revenue totaled $40.3 billion, down from $46.3 billion from the same period a year ago. Auto sales were $36 billion, down from $40.7 billion from a year earlier.
Ford repeated that its cash burn, including restructuring expenses, would be about $17 billion between 2007 and 2009, with $8.5 billion of that outflow this year.
Last month, the automaker took the unprecedented step of mortgaging assets, including its U.S. plants, to borrow over $23 billion to fund its expected cash burn.
The company projected that its capital spending would be about $7 billion in 2007.
Ford expects U.S. industry wide auto and truck sales would total about 16.8 million units in 2007 with overall incentive spending higher, which would imply a roughly flat U.S. market for sales of cars and trucks.
Some analysts have challenged that outlook as too rosy in light of a slowing U.S. economy.
"Market Will Be Down"
Said Kevin Tynan of Argus Research: "I think it will be difficult for the industry to be flat. I think the organic demand would lead you to believe the market will be down in 2007."
Ford cut North American production 22% in the fourth quarter and completed a buyout offer with unionized factory workers that cut 38,000 jobs. Its U.S. sales dropped 8% drop for the year.
Ford has targeted a return to profitability in 2009 by slashing costs and rolling out new car-based vehicles like the Edge intended to lessen its reliance on trucks.
Ford said it ended 2006 with 37,700 salaried workers in North America and was targeting a reduction to 28,500 by 2008. It had 77,900 hourly employees and is targeting a reduction of its factory work force to between 55,000 and 60,000 by 2008.