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HEARD ON THE STREET: Can Ford's Current Cushion of Cash Absorb Blow of LatestRestructuring? (Wall Street Journal)
Summary: Ford (NYSE:F) currently has about $23 billion in cash, down from $26 billion at the start of the year. As it embarks on its restructuring program, that cash cushion is expected to keep declining through 2007. CFO Don Leclair expects Ford to end 2006 with a cash position of about $20 billion, including $3.4 billion that was taken out from a retiree health care fund. As a result, Ford will start 2007 with $8.4 billion less cash than it had at the beginning of this year. Analysts expect that restructuring costs coupled with quarterly losses will force Ford to sell off Jaguar, Land Rover and possibly even Ford Motor Credit. If Ford continues to burn through its cash at anticipated rates, analysts are worried that cash could dwindle to less than $10 billion. According to KDP Investment Advisors credit analyst Kip Penniman, “We think they need in excess of $10 billion in actual cash to keep running... If it gets below that level, it gets quite concerning." As a cash conservation measure, Ford recently eliminated its dividend, which will save $374 million/year. This might not be good news for Ford shareholders. Cornell professor Roni Michaely published a paper showing that share prices generally decline for companies that stop paying dividends. This is in part due to fund and money managers who only hold dividend paying stocks.
Related links: Full article • How to Dodge the Dividend Cut • Why Japanese Cars Earn $2400 More Profit Each • Chris Ceraso's Auto Industry Forecast and Stock Picks • Throwing In The Towel On Ford • Jerry Flint Believes Detroit's Luck Has Run Out • Can Ford Survive? Stockholders Need to Know • Forbes: With GM Gone, Ghosn May Look To Ford • BusinessWeek: Arrogance and Complacency Damaged Ford • Bloomberg: Ford Likely Won't Seek Renault-Nissan Tie, People Say
Potentially impacted stocks and ETFs: DaimlerChrysler (DCX), General Motors (NYSE:GM), Honda (NYSE:HMC), Nissan (OTCPK:NSANY), Toyota (NYSE:TM). ETF: iShares Dow Jones Transportation Index (NYSEARCA:IYT)
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