There was nothing "sinful" in today's profit announcement from Ford Motor Co., and that stands in sharp contrast to the company's fourth-quarter profit story.
Ford today said it earned $2.6-billion (all figures in U.S. dollars) in the first quarter, the company's largest first-quarter profit in 12 years and a tidy increase over earnings of just slightly more than $2-billion a year ago. The first-quarter puts Ford on track for its third straight year of annual profit after posting losses totalling $30.1-billion from 2006 through 2008.
The news today is in sharp contrast to the Jan. 28 announcement of fourth-quarter earnings. Back then, the 17 analysts polled by Thomson Reuters expected the company to post a quarterly profit of 48 cents per share and a quarterly profit near $1.7-billion on revenues of $30.57-billion. What we got was a Q4 pre-tax operating profit of $1.3-billion or a 30 cents the share.
As a result, the equity analysts who follow Ford described the fourth quarter as "a miss" and a miss is a cardinal sin. One result: Ford's stock has been down slightly on the year, as investors shied away, with some taking profits, too.
The analysts, of course, focus mostly on numbers and a technical analysis of Ford. They do this because it's tricky to assess exactly how Ford CEO Alan Mulally has managed to transform Ford from a money-losing auto maker, beset by a dysfunctional culture and known mostly for its trucks, into a thriving enterprise.
The job is not done yet; no one at Ford will tell you that from top to bottom teamwork and co-operation prevail. But it's clear that the company's lineup of cars and trucks is winning new customers every day. The sales numbers reflect that, unequivocally.
Ford's announcement today is noteworthy because of the crazy environment in which the profits were earned. Despite high fuel prices, modest industry sales volumes in the United States, sluggish economic growth in developed countries - if at all - and rich sales incentives in Canada and the U.S., Ford is making big bucks.
Ford's turnaround in Europe is particularly interesting. Much of Europe is an economic basket case, with several countries seeking billions in bailout money simply to meet public payrolls and pay bondholders. Yet Ford's operating profit in Europe nearly tripled from a year earlier to $293-million. A $51-million pretax loss in Europe had contributed to Ford's 79 per cent decline in profit in the fourth quarter.
In the Ford results, two points are worth highlighting:
First, Truecar.com in the U.S. says Ford's average transaction prices climbed eight per cent to $33,173 in the first quarter compared to $30,658 a year ago. That's a big gain, given Ford is transitioning away from a heavy reliance on pickups and SUVs for earnings to passenger cars, especially smaller ones such as the Fiesta and Focus.
Second, Ford said it ended the first quarter with automotive gross cash of $21.3-billion, up $800-million from the end of 2010. Ford reduced debt in the first quarter by $2.5-billion during the latest period, leaving it with $16.6-billion in debt. That from a company that in 2006 borrowed some $22-billion simply to survive and pay for the total restructuring that is now showing real results.
Of course Ford, like other car companies, is cautious about the rest of this year. The company warned that results later this year may not be as strong as the first quarter. Ford said increasing commodity costs, seasonal factors and higher costs related to future growth may have an impact on earnings.
In this, Ford Motor reminds me a little bit of former Canadian Finance Minister Paul Martin in his heyday. When Martin was at his best he under-promised and over-delivered - he under-promised the size of the annual Canadian budget surplus and over-delivered, year after year. By doing so, he was able to pare down Canada's overall debt - something the self-professed fiscally responsible Conservatives have failed to achieve.
Personally, I'm a big fan of under-promising and over-delivering. If that's the new Ford way, it's worth applauding.