Earnings Preview: Ford to post 4Q profit

Ford's stock is rising, but problems lurk beneath the profits

Associated Press

DETROIT (AP) -- Ford is finally getting some respect from investors. But will it last?

After falling as low as $8.92 last summer when investors were spooked by huge losses in Europe, the No. 2 U.S. automaker's shares are now hovering at an 18-month high of $14. The company recently doubled its annual dividend to 40 cents. It calmed investors by announcing a restructuring in Europe. And it has settled concerns about succession for now: Respected CEO Alan Mulally will stay through at least 2014.

But Wall Street still has reasons to be wary. Ford's net income has fallen in five of the last six quarters. Analysts expect 2012 sales and profit to be below 2011 because of sinking sales in Europe and South America. The Dearborn, Mich.-based company has warned it will lose $1.5 billion in Europe in 2012 and at least as much this year in that troubled region.

Ford's car quality has also been dinged. Launches of the new Escape SUV and Fusion sedan — two of its most important vehicles — were marred by an embarrassing string of safety recalls last fall. And problems with electronics and bumpy transmissions pushed the Ford and Lincoln brands to the bottom of Consumer Reports' reliability rankings.

Here's what investors will be asking when Ford reports its fourth-quarter and full-year earnings Tuesday:

WHAT TO WATCH FOR: Ford lost U.S. market share in 2012 for several reasons. Its Japanese rivals returned to full strength after the 2011 earthquake in Japan, and it discontinued high-volume products like the Lincoln Town Car and Ranger pickup. Investors want to know if Ford can stop the slide. One risk: Sales could slow for the F-Series pickup, the nation's best-selling vehicle, because the company jumped the gun and revealed a possible future version at this month's Detroit auto show, says J.P. Morgan analyst Ryan Brinkman. Truck buyers may want to sit back and wait for the new one instead of buying now.

Ford is also spending hundreds of millions of dollars to rescue its Lincoln brand. Investors will want to know when sales will start justifying that investment.

And despite Ford's cost-cutting efforts, Europe's huge unemployment and debts may overwhelm the auto industry, especially if other companies don't scale back production as deeply as Ford.

Morgan Stanley analyst Adam Jonas believes Ford's shares could climb to $17 over the next year, because it's making more money per vehicle in North America and earnings from its credit arm are strong. But Ford could be hurt by rising raw material costs, the expense of meeting new fuel economy standards and pressure to cut prices in the highly competitive market.

WHY IT MATTERS: Ford, which employs 166,000 people worldwide, has made remarkable progress since it nearly went bankrupt in 2006. But Wall Street has long cast a skeptical eye on the cyclical auto industry. Ford is still trying to prove that its turnaround will stick and it won't return to the bad habits of the past, like overproduction and steep discounting. Ford also needs one more ratings agency — Standard and Poor's — to return it to investment-grade status. That move that would reassure investors and make it cheaper for Ford to borrow money.

LAST YEAR'S QUARTER: Ford reported $13.62 billion in net income, but most of that came from an accounting change. Excluding that change, earnings fell 15 percent to $1.1 billion, or 20 cents per share. Sales totaled $34.6 billion.

WHAT'S EXPECTED: Analysts polled by FactSet expect quarterly earnings of 25 cents per share on $33.5 billion in sales.