My Take On Ford's Results And Mr. Mulally's Future

| About: Ford Motor (F)
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On Thursday, Ford (NYSE:F) announced its quarterly earnings for the last quarter. The results were not surprising in terms of the trends (i.e., strong performance in North America, high-growth in Asia, improvements in Europe); however, the numbers were somewhat surprising as Ford was able to beat the analyst estimates. During the earnings call, many analysts were more concerned with whether the company's CEO Alan Mulally is leaving Ford for Microsoft than Ford's quarterly results.

Excluding one-time costs and taxes, Ford earned $2.6 billion (45 cents per share) in the quarter. The company spent $250 million for restructuring in Europe and $145 million on pension buyouts in the quarter. After taxes and these special items, the company's net income was $1.3 billion (31 cents per share).

Market share gains

As of the first 9 months of the year, Ford's market share in the US grew from 15.2% to 15.8%. The growth rate is pretty impressive, given that the North American automobile market is pretty stable and American car owners rarely switch from one brand to another. While the top car company in North America continues to be General Motors (NYSE:GM), Ford has been closing the gap in the last couple years. In Europe, Ford's market share rose from 7.9% to 8.0%. In China, Ford's double-digit growth continues as the company's market share jumped from 3.2% to 4.0%. Many people believe that Ford is too late in the game in Asia; however, the company is making up for this by growing rapidly and catching up with the competition in the continent, particularly in China. According to Ford's estimates, Chinese will be buying 21.7 million vehicles next year, up from 19 million, and the company wants to take a full advantage of this trend by increasing its manufacturing capacity (as well as network of dealerships) in the country.

Europe: things are improving

In Europe, Ford reported a loss of $228 million and it is scheduled to spend $1.2 billion more in the continent in the next couple years for restructuring charges. Ford is trying to become more flexible in the continent in order to match its production level to the level of demand. This has proven tough for most carmakers operating in the continent because the European labor laws make it very costly for companies to lay-off employees for economic reasons. In Europe, Ford is introducing new models in the market simultaneously with cutting costs, and the company hopes to stimulate sales while reducing expenses at once. The model has worked in North America and it can also work in Europe if enough time is given. Luckily, unlike the situation in North America in 2007 to 2009, Ford isn't fighting for survival and the company can take its time to make things work in Europe. In fact, the management confirmed once again that profitability is very possible in Europe by 2015.

Asia and South America offset European losses

In Asia, Ford's numbers were impressive. The company posted a revenue growth of 51% and a profit growth of 100%. The company's Kuga and EcoSport models are highly popular in China, and these cars usually carry much better margins than the smaller cars such as the Fiesta model. In South America, Ford posted a profit of $159 million, much better than last year's profit of $9 million. In the continent, Ford continues to suffer from volatile currency exchange rates and unstable political environment. Combining Asia and South America, Ford's total net profit was $285 million, which was good enough to offset all the losses in Europe. This is the first time in a long time that Ford's profits outside of North America were able to offset its losses in Europe.

As a result of these strong results, Ford raised its guidance for the full-year. Last quarter, the guidance was that Ford's performance in 2013 would be comparable to (or equal to) its performance in 2012. This quarter, the guidance was upgraded and now the management expects Ford to outperform its 2012 performance, which indicates year-over-year growth. Keep in mind that Ford posted a net profit of $8 billion in 2012. This year, the number is expected to be higher than that.

A word on Microsoft speculations

Having said that, I should also talk a little bit about one thing analysts seemed to be most concerned about during the conference call, Alan Mulally's future at Ford. In line with my earlier articles, I am almost sure that Microsoft (NASDAQ:MSFT) has approached Alan Mulally. On the other hand, this doesn't mean that Mr. Mulally will actually take the job. Being offered a job and accepting a job are two different things. Today, most websites and news reports talked about how Alan Mulally avoided the Microsoft question, but I look at this differently. If you look at Mr. Mulally's last statements and the way he handles questions, he chooses his words very carefully and he talks in a way that almost sounds like he's docking questions when he's actually answering questions in subtle ways. That's just the way Mr. Mulally speaks and this shouldn't be interpreted as if he's avoiding questions.

Mr. Mulally clearly stated that there is no change since Ford's last statement in November which said that Mr. Mulally would serve Ford at least until through 2014. Even if Mr. Mulally was approached by Microsoft (which I am positive he was), we don't know the way he was approached. Alan Mulally is good friends with many of the key players at Microsoft such as the current CEO Steve Ballmer and the former CEO Bill Gates. If they approached him in an informal way (like two friends speak), this is not the same as making a formal offer. We will have to wait and see how things work out with Microsoft's CEO hunt.

Coming back to Ford, the company had a strong quarter and its guidance upgrade was nothing but good for the investors. The company continues to move on the right path.

Disclosure: I am long F, MSFT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.