The glow enveloping Ford Motor Co. and its strong recovery from the auto crisis faded in a matter of hours Friday when the company missed fourth-quarter profit targets, sparking a sell-off of its stock and other auto makers and parts suppliers.
Ford cited higher costs and an unexpected pre-tax loss at its European operations for the fourth-quarter miss, which sent its shares plunging $2.52 or 13 per cent to $16.27 (U.S.). The Ford news, combined with a surge in the price of oil in response to riots in Egypt and Yemen, sent shares of General Motors Co. , Magna International Inc. , Lear Corp. and other parts makers down sharply. Magna shares dropped 6 per cent.
"This is a vulnerable sector" to higher oil prices, said analyst David Tyerman, who follows industrial and transportation companies for CanaccordGenuity in Toronto and noted that shares in U.S. airlines also took a hit. "The worry is: Oh my God, here we go."
The latest round of turmoil in the Middle East sent U.S. oil prices $3.70 or 4.3 per cent higher to $89.34 a barrel.
While Ford posted its highest annual profit in more than a decade, raised its U.S. sales forecast and said it will increase production in the first quarter, investors were unnerved by the fourth-quarter profit drop, which company executives said could have been communicated earlier to analysts and investors
"We gave pretty clear guidance that we were going to have some cost increases in the fourth quarter and perhaps we didn't manage to make that as clear as we would have done," chief financial officer Lewis Booth said on a conference call. "We are clearly disappointed that we guided that Europe was going to be profitable and we failed to achieve that."
Ford enjoyed strong growth last year - including a run to sales leadership in Canada - and was bolstered in part by the fact that it was the only Detroit-based auto maker to avoid Chapter 11 bankruptcy protection in the United States, and a bailout by U.S. and Canadian taxpayers.
The company said Friday that costs for manufacturing, engineering and advertising new vehicles grew in the quarter, noting that commodity prices are rising.
But chief executive officer Alan Mulally said the 2011 results will be better and all regions will be profitable.
"Clearly the most important thing is the year-over-year guidance that we give for 2011, which is very positive," Mr. Mulally said on the conference call.
But some analysts remain skeptical.
"These results significantly call into question the idea that Ford's North American margins should expand from the 10 per cent level as SAAR [seasonally adjusted annual rate]grows over the next few years," J.P. Morgan auto analyst Himanshu Patel said in a note to clients.
As for Magna, its shares have run up dramatically in recent months after a controversial plan to buy out founder Frank Stronach's controlling shares took effect and the company raised its dividend, split its stock and announced a share buyback.
Magna shares fell $3.40 (Canadian) to $57.79 in trading on the Toronto Stock Exchange. Shares of interior and seating giant Lear fell 5 per cent on the New York Stock Exchange, while American Axle Inc. posted an 8 per cent decline.
Mr. Tyerman said he expected a bit of a pullback in Magna shares after an upgrade on the stock to neutral from sell by Goldman Sachs Inc. boosted the stock in trading on Thursday.
Magna and other auto parts stocks "have had monster runs" as the auto industry recovers from the 2008-2009 crisis, one fund manager who holds Magna shares said Friday. "I think Magna still looks reasonably valued."