Ford's International Losses To Triple In Second Quarter
We had previously expressed our opinion on Ford (F)'s financial results, as well as its future prospects. The latest developments on Ford, coupled with its recent poor stock performance, confirms our short recommendation on the stock. We believe that General Motors (GM) is better poised to deal with international economic pressures, and it is evident in the company's recent quarterly results. The company's international operations showed an improvement of almost 16% in revenues, up by $850 million. Moreover, GM has more financial strength than Ford, as it operates with minimal leverage as compared to Ford's debt-to-equity of 600%. Since our earlier report, Ford's stock has plunged almost 10%, and if we compare the performance of Ford with the market benchmark and GM, its underperformance is visible on a YTD basis.
Ford's shares dropped almost 4% to close at $9.7 yesterday as the company made public its expectation of losses from its international operations in the soon ending second quarter.
In an interview with the New York Times, Robert Shanks said that Ford expects second quarter losses to triple. The company reported a first quarter net loss of $190 million (Europe's loss of $149mn, Africa's loss of $95 million and South America's gain of $54 million) from its international operations, which means that the company is expecting losses close to $600 million in the second quarter. The company's European division has been held responsible for this expected loss in the second quarter, which ends in a few days. Europe has proven to be a tough market for Ford, as it has not been able to step up to the discounts being offered by other players. Moreover, the debt crisis in Europe has hurt overall consumer confidence and consequently lowered demand for the auto manufacturer.
A loss of such a magnitude would further depress the company's earnings further. This announcement comes as an update to the previous one where the management didn't expect losses from its international operations to exceed the previous quarter losses of $190 million. Ford Europe saw a decline in both volume and sales in the first quarter, with first quarter revenues declining by 17% compared to 1Q2011. The division failed to achieve the industry sales target because of low industry sales and lower demand for parts and accessories. Even though ford has not announced that it will close a plant in Europe, the company's plant in the Philippines is expected to shut down by the end of this year. Moreover, the company is losing money in the Asian markets, as it spends more on opening new plants there. The company has underperformed compared to the broad market indices as well as its industry. Its net income took a major drop of almost 45% in 1Q2012, compared to the previous year's quarter. The company has a debt-to-equity ratio in excess of 600%, which is very high and above the industry average.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
