Ford Motor Co. (NYSE: F) shares drove off a cliff on Friday, splashing mud on the broader market on their way down as the automaker reported a 79% drop in fourth quarter profits in its latest earnings report. Ford shares closed down $2.54 (a brutal 13.5% slide) as a result. But one bad date shouldn’t sour a good long-term relationship with investors — and there’s a lot to love about Ford stock long term.
First, let’s talk about Friday’s sell-off. The company’s 2010 Q4 net income fell to $190 million (5 cents a share), down from $886 million (25 cents a share) in the same quarter of 2009. Wall Street had been head over heels for the stock, which has shot up about 60% in the past year, was expecting a racy 48 cents a share. The Ford earnings miss was ugly, and so was the decline for F stock. It was Ford’s first earnings miss in two years, but it missed by a mile.
But the “bad date” was a combination of misunderstanding and miscommunication that goes beyond just bad numbers. Key factors contributing to the profit slump: Ford paid down nearly $2 billion in debt during the fourth quarter and spent $1 billion more than expected on raw materials and new product launches. Also, the company decided not to sacrifice margin for sales in Europe — spurring a $51 million loss in those operations.
Addressing the earnings miss in a conference call, Ford CFO Lewis Booth vowed to work harder on communicating more clearly. “We recognize that we missed versus people’s expectations,” he said. “But we also will continue to try and do a better job on making people understand what the outlook is, rather than what, perhaps, the analysts got it up to.”
The earnings shortfall may have left the market wondering whether Ford is still hot enough to hold on to, but there are five solid reasons investors should consider cozying up to those shares right now:
1. There’s still upside for the year ahead. Even though no one expects the super-sized profits the market has seen over the past 12 months, there still will be significant growth this year. Ford executives are promising that 2011 full-year operating profit and operating cash flow will best its 2010 numbers.
2. Paying down debt is a good idea. Ford paid down a total of $14.5 billion in automotive debt last year, leaving it an even more solid investment for the long term.
3. Gear heads think the new Ford Focus Electric is pretty sweet. The new Focus beat out the Honda Fit EV, Mitsubishi i, Toyota RAV4 Electric, and Volvo C30 DrivE electric to bag Green Car Journal’s annual “Green Car Vision Award” on Friday.
4. Global focus will pay off. Because the new product launches will be based on Ford’s global car platform, most of the parts will come from the company’s global parts bin, reducing costs and boosting operational efficiency in its global business.
5. Sales are strong. Ford’s full-year sales rose by $4.6 billion in 2010 to $120.9 billion. Ford also posted back-to-back gains in market share for the first time since 1993.
Bottom line, Ford remains attractive, particularly since Friday’s sell-off should bring back bargain hunters early next week. With Toyota Motor Corp. (NYSE: TM) recalling another 1.7 million vehicles this week and analysts wondering how General Motors’ (NYSE: GM) challenges with its European brand will impact GM earnings, Ford is likely to remain the most popular date at the dance in 2011.
