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Ford Q4 profit beats Street ,widens Europe loss estimate

Jan 29 (Reuters) - Ford Motor Co, the second-largest U.S. automaker, posted higher-than-expected fourth-quarter profit on the strength of its North American operations, but predicted a wider loss in Europe due to persistent weakness in the region.

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In my mind there were three things to focus in at:

1) Europe - this is what you we will hear about all day. Not terrific numbers. High end and projected beyond prior expectations.

2) US Margins - haven't had time to do the math.

3) Further debt reduction.

For #3 -I only had 10 minutes to look through the full financial release ( ), but no mention of whacking the debt with some of the cash.

I can't remember - is this something they generally address later? I thought they had mentioned in earnings announcements previously?

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I would imagine Ford's going to be cautious, project $2 billion losses in Europe. There are other things to look at beyond debt. Their success in NA is being impaired out by Europe's losses. Margins were a bit upbeat for this year, and net cash flow is very positive, all things considered.
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My takeaways:

* From including quotes below: "For 2013 outlook, Ford expects another strong year, with Total Company operating profit to be about equal to 2012, Automotive operating margin to be about equal to or lower than 2012, and Automotive operating-related cash flow to be higher than 2012"

More of the same overall. There is hope for the future because the platform commonization strategy is still being implemented, pension costs are still being reduced, Europe is in the early stages of being fixed, Asia is still ramping up. Over the long term, I'd say there is a positive outlook for the company. For investors, I think the prime opportunity is a gradual market recognition of the progress, which may lead to a somewhat higher PE. Patience is the key here.

* "As part of Ford's previously announced strategy to de-risk its pension obligations, the company made $3.4 billion in cash contributions in 2012 to its worldwide funded plans, $2.3 billion higher than 2011. This included $2 billion of discretionary contributions. In 2012, Ford settled $1.2 billion of its pension obligations as part of the voluntary lump sum payout program for salaried retirees, which began in the second half of 2012 and will continue through 2013. For 2013, cash contributions to funded plans are expected to be about $5 billion globally, including discretionary contributions of about $3.4 billion."

Still waiting for my pension buyout offer. :)

* North American operating margin up from 8.3% to 10.4%, spectacular!

* South America operating margin down from 7.8% to 2.1%, not good. 2013 expected to deteriorate further.

* Europe: Worse. High restructuring costs, will hopefully improve somewhere beyond 2013.... but certainly no guarantees. The macro-economic environment, coupled with industry over-capacity is making it hard on the secondary players in the market. VW is cleaning up.... it could be a good investment!

* Asia: Sold 40% more vehicles, margins "improved" from -1.1% to -0.8%. Market share up from 2.8% to 3.4%. 2013 expected to breakeven. This region has required a lot of patience. I hope that patience pays off.

* Ford Credit was down, due to fewer lease terminations (with vehicles subsequently sold at a gain) and lower financing margins. 2013 results to be flat.

* Overall Ford quality levels did not show improvement, but were "mixed". Ford will give it a go again and try to improve. I'd say that's pretty hard because there is so much work, so many new processes being implemented, so much pressure to reduce costs (supposedly without the customer noticing).... and people are being pushed to work harder and longer hours. That's hard to make improvements in those circumstances.

That's my take. Nothing spectacular, a difficult road ahead..... but a good likelihood of better times in the future with higher profits and a nice dividend. I wouldn't make an investment in Ford with the intent of getting rich quickly, but I believe a modest investment here provides some opportunity.

I have a small Ford position, a bit more than 1% of my portfolio.

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Rob: Very good message. I wished i only had a 1% position.I am still holding for a high teen PP/S. Thanks
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I wished i only had a 1% position.I am still holding for a high teen PP/S. Thanks,/i> -- mitchjl

The easiest way to reduce a position is to sell. The most painful way is to watch the company go to zero. I've been there with that "zero case", with companies going into bankruptcy and losing the complete position. That's not too much fun.

We can be thankful that Ford is doing pretty well and that we weren't cleaned out in the recent financial crisis like GM shareholders. :)

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One of my favorite things about investing in stocks is taking a punch in the face when earnings fail to beat the street estimates by enough. Ah, well. My F and AAPL holdings are staying put for another quarter, barring surprises.

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