Ford Net May Be $2.65 Billion as Mulally Achieves ‘Impossible’

(Bloomberg) -- Ford Motor Co. may report 2009 net income of $2.65 billion tomorrow after overcoming the worst U.S. auto market in 27 years and avoiding a federal bailout.

An annual profit would be the first for Chief Executive Officer Alan Mulally and ratify his strategy of developing new models such as the Fusion hybrid while slashing the North American workforce by about 47 percent since he joined Ford from Boeing Co. in late 2006.

The full-year earnings projection, the average of three analysts’ estimates compiled by Bloomberg, would end three straight losses at Dearborn, Michigan-based Ford that included 2008’s record $14.7 billion. Adjusted fourth-quarter profit may be 26 cents a share, based on 13 estimates.

“This is a company that absolutely bled money in the last five years,” said Bernie McGinn, president of McGinn Investment Management of Alexandria, Virginia, which owns 320,000 Ford shares. “Mulally has done what had been considered impossible in a very short amount of time.”

Net income for 2009 was buoyed by a $2.8 billion second- quarter accounting gain. Ford’s operating loss was $1.02 billion, based on five estimates, as the recession and the bankruptcies at General Motors Co. and Chrysler Group LLC helped drag U.S. auto sales to their lowest levels since 1982.

The projected quarterly profit of 26 cents a share excludes some costs and gains, and compares with a year-earlier loss of $1.37 a share on that basis. Bill Collins, a spokesman, said Ford had no comment before tomorrow’s announcement.

Mulally’s Outlook

Mulally, 64, reiterated yesterday to reporters in Washington that Ford won’t be “solidly profitable” on an operating basis until 2011, saying he’ll give “updated guidance” once earnings are out. Analysts expect operating profit of $3.61 billion in 2010, the average of 5 estimates.

“My confidence in Ford has improved dramatically, even in the last few weeks,” Efraim Levy, a New York-based equity analyst for Standard & Poor’s, said in a Jan. 22 interview. He cut his rating on the shares to “sell” from “hold” on Dec. 23, citing the stock’s rise past his $9 forecast.

Ford rose 16 cents to $11.19 yesterday in New York Stock Exchange composite trading. After jumping fourfold in 2009, the shares have climbed 12 percent this year.

The company’s 7.45 percent notes due July 2031 more than tripled in the past year to 87.94 cents on the dollar yesterday, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The yield fell to 8.7 percent from 33.2 percent a year earlier.

‘Paying Attention’

December sales were “an excellent sign that consumers are paying attention to Ford,” Levy said.

The automaker’s U.S. deliveries rose 33 percent, more than twice the industrywide gain in December, to cap a year in which its market share rose to 16.1 percent from 15 percent in 2008. Ford swept car and truck of the year honors at the Detroit auto show on Jan. 11 and is rolling out two small, fuel-efficient models, the Fiesta and Focus, over the next 12 months.

Shunning a federal rescue helped improve Ford’s standing with U.S. buyers, according to Mulally.

“I wouldn’t trade the goodwill and the interest in Ford that we got for standing tall for the industry in the United States,” Mulally told reporters at a Jan. 11 dinner in Detroit. “People have discovered that we’ve got great products.”

The competitive disadvantage for Ford is that bankruptcy cleansed debt from GM’s balance sheet, Mulally said.

‘Lot of Debt’

Ford’s total debt grew to $36.8 billion at the end of 2009 from $26.9 billion on Sept. 30, according to slides from a Jan. 15 presentation by Himanshu Patel, a JPMorgan Chase & Co. analyst who advises holding the shares.

“The good news is that Ford didn’t go through bankruptcy, but they still have a lot of debt,” said Jeremy Anwyl, CEO of auto researcher Edmunds.com in Santa Monica, California.

Ford borrowed $23 billion in late 2006 before credit markets froze. The automaker put up all major assets, including the Ford name, as collateral in what Mulally called “the world’s largest home-equity loan” to build a cash cushion to withstand losses while developing new models.

Now, “a key question for its business-risk profile is whether Ford can continue improving its market share” with GM and Chrysler out of bankruptcy, S&P’s Robert Schulz and Gregg Lemos Stein, two New York-based debt analysts, wrote on Jan. 15.

Market Share

Ford grabbed more of its home market in 2009 because its 15.3 percent sales drop was smaller than the industry’s 21.2 percent contraction, according to researcher Autodata Corp. of Woodcliff Lake, New Jersey.

That probably translated into a 25 percent drop in full- year revenue to $110 billion, based on the average of estimates from 12 analysts.

A recovery in auto demand may help in 2010, with Ford forecasting U.S. auto sales rising as much as 18 percent from last year’s 10.4 million deliveries.

Of 17 analysts covering the shares, 9 say buy, 6 advise holding and 2 recommend selling, according to data compiled by Bloomberg. In January 2009, 1 analyst had a buy rating while 8 said hold and 3 said sell.

“The whole perception of Ford in the marketplace is radically different than it was a year ago,” said McGinn, the Virginia investor. “The analyst community for the last 10 years has been nothing but negative. Now there is actually some excitement around Ford.”