Ford announced first quarter earnings of $2.1 billion or 50 cents a share. This isn't good enough to make up for its losses of $31.4 billion between 2006 and early 2009. The company still has a negative book value.
Debt ridden Ford Motor (NYSE: F) earned $2.1 billion in the first quarter or 50 cents a share. Mainstream media reported this as "another sign the economy is improving as people spend more on big-ticket items like cars". Unstated was which economy was improving or that those people were in China. Nor did any report mention that Ford stock has a negative book value of minus $2.32 per share.
What struck me immediately about Ford's 2010 Q1 earnings report was a major inconsistency with the Q1 earnings report for 2009. Ford lost $1.4 billion, or 60 cents per share in the same period last year. This implies that there were 2.3 billion shares outstanding twelve months ago. Based on today's earnings numbers there appear to be 4.2 billion shares outstanding. Ford did issue an additional 300 million plus shares of stock last May. News reports at the time indicated it had 2.9 billion shares outstanding before the sale. Today, Ford supposedly has 3.4 billion shares of stock. Off hand, I would say these numbers don't appear to match up.
It is quite amazing that Ford did not sink into bankruptcy, as did General Motors and Chrysler. From 2006 to the first quarter of 2009, the company lost $31.4 billion. Actions taken by Ford in 2009 though are helping the bottom line today. The new shares it issued at the time were used to fund VEBA, the UAW run health car trust, and this saved the company from using cash for this purpose. Ford also worked out an agreement with the UAW that allowed it to lower its labor costs by $500 million annually. At the same time, Ford managed to lower its interest payments on its substantial debt by $500 million a year through agreements with debt holders. Fortunately for the company, Ford is making a good share of its profits from its credit unit (not from selling cars), which earned a net profit of $528 million in the first quarter of 2010. Ford has the Fed's zero interest rate policy to thank for that.
As for sales, there was a huge increase - in China. Ford reported an 84 percent improvement there. As for North America, U.S. sales did climb 37 percent over last year’s exceptionally low levels. Part of this is due to Ford's market share rising nearly three percentage points thanks to problems at Toyota. Total U.S. auto sales in 2009 came in at 10.4 million, down from over 16 million before the recession began. Ford still sees sales in the 11.5 to 12.5 million range for 2010. This is still substantially below pre-recession levels. Investors should also ask themselves how much of those extra sales are due to federal government policy. If this is a recovery, it's not much of one.
Ford stock was down more that 9% on its earnings announcement in morning trade. It fell as low as $13.15. That's still a pretty high stock price for a company with a negative book value.
Mr. Montgomery is Author of Inflation Investing – A Guide for the 2010s. He's an independent market strategist and trader along with organizer of the New York Investing meetup.
