Ford (F) posted fourth-quarter results that showed excellent top-line performance but weak underlying profitability that disappointed most investors. We continue to believe that Ford has substantial valuation upside and believe the firm to be a long-term holding in the portfolio of our Best Ideas Newsletter. We’re not playing the “quarterly earnings game” with the automaker’s shares and may add to our position in our Best Ideas Newsletter upon significant market weakness.
Total revenue of $34.6 billion in the fourth quarter came in better than consensus expectations and represented a 2.1% increase from the same period a year ago. Fourth-quarter pre-tax operating profit came in at $1.1 billion, or $0.20 per share, down from $0.30 in last year’s quarter and below consensus expectations of $0.25 per share. Given the operating leverage inherent in the automaker’s business model, large beats or misses in quarterly results shouldn’t be unexpected.
Automotive pre-tax operating profit was $586 million in the fourth quarter (down $155 million from the same period a year ago), while Ford Credit reported a pre-tax operating profit of $506 million during the period (down $34 million from the same period a year ago). Pre-tax operating profit in North America was strong (advancing considerably from the same period a year ago), but performance in Europe and Asia Pacific (
Automotive operating-related cash flow was $700 million in the fourth quarter, and Ford ended 2011 with automotive gross cash of $22.9 billion versus automotive debt of $13.1 billion. The automaker ended 2011 with $32.4 billion in total automotive liquidity, offering investors significant option value to wait patiently for pent-up automotive demand to be realized across the globe. As it relates to industry volume, Ford expects US full-year units to be in the range of 13.5 million to 14.5 million (up from the 13 million units sold during 2011) and European full-year units to be in the range of 14 million to 15 million (slightly lower than the 15.3 million units sold in 2011). Both ranges we think are conservative and achievable.
Though we believe Ford will have continued product momentum and gain market share in the US, Asia-Pacific (Africa), and Europe, the company believes pre-tax operating profit will be equal to 2011, a disappointment to us. Nonetheless, we maintain our view that shares of Ford are significantly undervalued and look to better performance through the course of 2012 and into 2013.