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Ford Shows Survival Instincts

Posted: Jul 30, 2009 17:12 PM by Greg Sushinsky

Filed Under: Recession,Stock Analysis,Stocks

Tickers in this Article: DAI, F, HMC, NSANY

Wall Street cheered Ford Motor Co.'s (NYSE:F) second-quarter earnings report, which featured numbers that could only come from the auto industry. Despite still-massive losses, Ford has been the only relatively intact survivor among the former Big Three, with privately held Chrysler and General Motors going through bankruptcy. Ford now stands poised to emerge from what has been the darkest chapter in the history of the American auto industry.

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Still Massive Losses
Excluding a one-time charge, Ford reported a second-quarter operating loss of $638 million, or 21 cents per share, against a second-quarter loss of 62 cents per share during the same quarter in 2008. Although analysts' expectations are known to be flawed, for what it's worth, the consensus this quarter was for a 53 cents per share loss, and Ford's performance was encouraging measured against that.

With revenue down to $27.2 billion from $38.2 billion, Ford's net income was 69 cents per share, or $2.26 billion, on accounting gains related to debt reduction. Most important, Ford reduced its rate of burning cash to $1 billion in the second quarter, down from $3.7 billion in the first quarter. This key development suggests less pressure on Ford's finances in the immediate future.

Auto World Showing Signs of Life
With the traditionally cyclical auto industry never having seen the kind of carnage it has recently experienced, there are some signs of improvement on the horizon. Yet the earnings pictures of several companies remain off. Daimler AG (NYSE:DAI) just reported a $1.5 billion loss for its second quarter, although it maintains that "the worst is over" for the company and the sector, cites "gradual improvement," and is looking toward profitability soon.

The Japanese automakers are doing better. Both Honda Motors (NYSE:HMC) and Nissan (Nasdaq:NSANY) reported surprise profits in their second-quarter reports. Although both companies' earnings are lower than the comparable quarter last year, again, analysts expected losses.

Prospects for Ford
While some analysts see Ford returning to profitability next year, Ford CEO Alan Mulally is more cautious, stating that Ford will reach profitability in 2011. Ford has managed to pick up a couple of percentage points in market share during this auto nuclear winter, and is implementing cost reductions and new product development, such as the luxury Taurus. A looming concern, however, is the $25.8 billion in debt Ford still carries, although it also has $21 billion cash from operations.

The Future for Ford
In line with the demolition of the auto industry and the resulting pressures on Ford, its stock has been beaten to a low of $1.01 in the last 52 weeks, a far cry from its $38 figure in the last decade. The high stock price in the last 52 weeks was less than $8, so should the company reach any kind of stable profitability in the next couple of years, it could be worth a long-term look, as there's could be a lot of upside price potential.

At this point, though, despite the happier predictions from auto industry observers, investors should consider Ford and any of the other automakers purely as trades, not investments, and wait to see if the economy rebounds and the industry gets on level ground before buying in. (To learn more, check out Analyzing Auto Stocks.)

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By Greg Sushinsky

Greg Sushinsky is a passionate independent investor, who has done his own research, analysis and investing for 20 years. One of his earliest investing memories was when he first saved and bought U.S. Savings Bonds with his own money as a small child. From there, he studied investing on his own and made small stock purchases as he grew as an investor.

Sushinsky still follows the markets, studies and reads widely in financial literature, and has written over 75 articles on investing. He is also a professional editor, whose work is published extensively in large-circulation magazines, digests and across the internet. In other pursuits, Sushinsky writes fiction and has a university degree in philosophy. To see more of Sushinsky's literary work, see http://writing.gregsushinsky.com/.

Filed Under: Recession,Stock Analysis,Stocks

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