In this article I will point out some of the things that should bother Ford Shareholders. I'll make some recommendations. I will also compare Ford (NYSE:F) to General Motors (NYSE:GM), and their treatment towards Shareholders.
Ford is one of the world's largest automobile manufactures. Annually, over the last four years they've averaged $148 billion in revenue, and around $6 billion in net-profit. This is not a high margin business. However, the business has been consistently and solidly profitable since the great recession. The consistent earnings however have done NOTHING for the Share price. As a matter of fact the Share price is down 30% over the last three years.
With the Shares trending ever-downwards, I think it is time for Ford to consider some new / different strategies:
I think it is time for Ford to consider MASSIVE stock buybacks. What could be more sensible than buying your own company stock when it is trading at a huge discount to intrinsic value? Shouldn't the Ford management team (and family) be familiar enough with the company to understand that it is deeply undervalued?! And, they have $17 billion per year (three year average) coming in Operating cash-flow!
Quoting Warren Buffett's 2011 Shareholder letter:
Repurchases are sensible for a company when its shares sell at a meaningful discount to conservatively calculated intrinsic value. Indeed, disciplined repurchases are the surest way to use funds intelligently.
GM is taking some of Warren Buffett's above advice! Paraphrasing Page 17 of GM's 10-K:
In January, 2016 our Board of Directors authorized the purchase of up to $4 billion of our common stock. In January, 2017 our Board of Directors authorized the purchase of up to an additional $5 billion of our common stock.
Category - Willingness to buy back shares: F = 0, GM = 1
Again, and I can't state this clear enough, what Ford is doing currently is NOT working.
Healthy balance sheet, huge cash-flows, great profits, cheap stock. It should add up to a 'light-bulb moment' which spurs the Management into Buyback action. But judging by Management's current approach, the lights are still out up there. I'm not just speaking out of anger. During the most recent Quartely Call Ford's CRO Robert Shanks actually said the following in response to a question from investor George Galliers (Evercore, ISI):
I finally found something good about the lower share price. And that's the fact that the cost of the anti-dilutive share repurchase program isn't as great as what we had thought.
Ask yourself this; can any common-sense approach explain why Executives and Directors pay has increased over the last three years? During that time Ford's Stock has under-performed the S&P 500 (by around 50%), and also under-performed the Dow Jones Automobiles and Parts Titans 30! They are not winning when compared to their own competitors, yet the pay keeps going up.
Recent news: Today (May, 16th) there is news that Ford is looking to cut 10% of their global workforce. I understand that fighting bloat is part of business. But, it would mean a helluva lot more to me if the Directors and Executives volunteered a 10% pay-cut along with these painful job-cuts (don't hold your breath for that one.....because you will black-out from the lack of oxygen). Speaking of, Directors got a annual raise of 26%! Quoting from Exhibit 10-G (Page 183 of 200) of the Annual report:
the Board of Directors approved an increase in Board annual retainer compensation to $315,000 from the current $250,000 and approved increases in Presiding Director and certain Committee chair fees.
FYI, the Presiding Director fee went to $50,000 from $30,000 (a 67% increase)! If I were an hourly employee getting the pink-slip while these Directors and Executives get raises I'd be ticked-off. And, while GM is no angel in Director's compensation, GM is at least more reasonable in the matter:
Category - Director's pay: F = 0, GM = 1
And one last little thing I want to point out to my fellow Ford Shareholders. When thumbing through the Proxy Statement I noticed Ford paid $898,066 in security-cost for Mr. Ford. This company pays him in excess of $10 million every year (Total Pay for 2014, 2015, and 2016 was $15.6 million, $12.9 million, and $13.9 million respectively). If we're paying anyone over $10 million, that Executive should be asked to cover security-cost over some particular threshold. I own about 15 Stocks and checked security-cost at every company I own. I could not find another company paying more than $500,000 to protect one of their Executives. Warren Buffett's ran $387,881. And for comparison sake, over at GM, Mrs. Barra's security cost ran $81,868.
Category - Reasonable security cost: F = 0, GM = 1
On almost all valuation metrics Ford is a very cheap Stock. And that cheapness is honestly the only reason I own it. I also expect trucks and larger vehicles to do well (so long as gas prices stay around this price-range). It's important to note that the larger vehicles are more profitable for Ford. So, I actually see a bright future for Ford. But, with this Management team at the helm, Shareholders will be much better served over at GM.
Disclosure: I am/we are long F, GM, BRK.B, XIN.
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.