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Ford posts full-year profit, but investors are wary

By Alisa Priddle, Detroit Free Press –

DETROIT — Success in North America fueled Ford’s most profitable year since 1998, but fourth-quarter losses and uncertainty in Europe and Asia spooked the market Friday.

Investors worried whether Ford’s European business is truly on the mend — or whether the “One Ford” global mantra is ringing hollow, leaving the automaker overly dependent on North America.

At first glance Ford ended 2011 on a high note: full-year net income totaled $20.2 billion, most of which was driven by a one-time $12.4 billion non-cash accounting gain that doesn’t represent real money.

For the full year, operating profit of $8.8.billion exceeded $8.3 billion in 2010, but the $1.1 billion fourth-quarter operating profit fell short of Wall Street’s expectations. Losses of $190 million in Europe and $83 million in Asia Pacific, on top of higher commodity and currency costs, caused investors to sell off. Ford shares tumbled 4.2 percent to close at $12.21 in heavy trading volume of 142 million shares.

Ford CEO Alan Mulally and CFO Lewis Booth worked to soothe investors. They attributed the losses to short-term expenses of restructuring in Europe, building seven new plants in Asia and launching new vehicles for South America. These steps are designed to balance Ford’s profitability around the world, they said.

But investors remembered a similar disappointing quarter a year ago.

The automaker surprised Wall Street with a 79 percent drop in fourth-quarter 2010 earnings.

“Compared to a year ago, this is nothing like the same drop,” Booth said.

Eric Selle of JPMorgan said that “while Ford’s 4Q missed estimates for the second year in a row, our model was admittedly too positive. We view the drivers of the miss as explainable and not sustainable.” JPMorgan maintains a “buy” recommendation on Ford debt.

Booth said fourth-quarter results are tougher to predict because of seasonal cost increases. Even so he said Ford had a strong year and “for the auto business we made $1 billion more than a year ago,” and Europe and Asia results will improve.

Barclays Capital analyst Brian Johnson said all regions came in about $100 million below estimates.

Mulally said the company is accelerating efforts to develop global products for all regions.

European plants are now running at 93 percent capacity which will help Ford resist the temptation to increase incentives and discount pricing.

“We won’t chase marginal business in Europe,” Booth said.

Flooding in Thailand forced Ford to cut production of 34,000 Ranger pickups, but through 2012 Ford should benefit from new plants and vehicles planned for Asia.

Overall commodity costs, which were higher than expected at $2.3 billion in 2011, were showing signs of leveling off in the fourth quarter and should not be a factor in 2012, Booth said.

Ford continues to trim debt as it seeks a return to investment grade status. It will pay a 5-cents-per-share quarterly dividend in March, after suspending its dividend in September 2006.

Operating profit of $6.2 billion in North America in 2011 means 41,600 hourly workers in the U.S. are eligible for profit-sharing. A worker who worked a normal year without overtime in 2011 will get a check for $2,448 in March. The labor contract called for a typical profit-sharing payment of $6,200, but Ford already paid many workers about $3,752 before Christmas.

Debt actually grew to $13.1 billion from $12.7 billion in September 2011, largely because Ford tapped an additional $300 million in low-interest U.S. Department of Energy loans to continue work on fuel-efficient vehicles.

Net cash at year end was $9.8 billion, $8.4 billion higher than at the end of 2010.

Ford said it will contribute $3.5 billion to its underfunded pension this year.

Globally, the pension fund is underfunded by $15.4 billion, and in the U.S., it is $9.4 billion short. The automaker has said it wants pension fully funded in the next several years.

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