I don't think Ford Motor Co.'s (F) stock will be revving up for a bull run. Looking over Ford's fourth quarter and full year's earnings release, it's clear that the company is no longer deriving the same value from its revenue increases.
Revenue increased 1% year over year to $41.8 billion. Net income on that revenue was actually a loss of $100,000. That's ($0.03) per diluted share. Ford noted the losses included a "negative $0.9 billion non-cash pre-tax mark-to-market adjustment for global pension and OPEB plans." Adjusted earnings were $0.30 a share. Even on an adjusted basis, earnings came in below expectations of $0.32 a share. Ford posted a loss in every segment outside of North America where it seems to be squeaking by on trucks. With concerns over both the European and Asian markets, I'm afraid that Ford is going to be forced to continue relying on SUV sales in the United States.
The year itself demonstrates the eroding performance of the business; which I worry will lack the fuel needed to stoke the stock price in the right direction Full-year revenues increased 2.3% to $160.3 billion, while full year net income decreased roughly 52% to $3.69 billion. On a diluted earnings per share basis, earnings decreased a comparable 52% to $0.92 a share. Frankly, I don't like adjusted earnings. If you incurred pension expenses or factory expenses, that cost you money. It should be reported that way.
The saving graces for Ford are a beautiful balance sheet comprised of $23.1 billion in cash -- meaning the dividend yield of 7% (depending on daily trading activity) is likely safe -- and the interesting development in its "alliance" with Volkswagen (VLKAY) . The details are murky as to what this alliance will mean over the long term, but I suspect they will make attempts to share the costs of tech and platforms for crossovers and cars.
Overall, I see nothing in the fourth quarter that will drive Ford's stock price up.
Over the last five years, Ford has witnessed a record peak in the auto cycle. Since then, there's been a gradual decline in the company's overall sales per unit. The company's bottom line has been bolstered by strength within lucrative trucks and SUV's, while traditional sedans have been the group to falter. Now, as trucks showed weakness in the fourth quarter, one has to wonder if the run is over. Aside from Tesla (TSLA) , auto stocks do not run at high valuations. In fact, they trade at some of the lowest multiples in the stock market. It can make Ford very tempting right now, but at the same time one must remember that the stock won't experience significant uptick without a major catalyst. Car stocks actually follow earnings -- a mind bending concept these days.
As revenue potential and earnings growth come into question, I don't see Ford's share price doing anything drastic. You have to be prepared to hold your shares and collect the dividend for quite a while, and it could be great long while. Auto companies are usually one of the first things hit by economic slowdowns. It doesn't make a ton of sense to purchase a big expensive pickup truck if times get a tighter. I am in agreement with many that we are not in a recession. But after years of big sales figures, I think the marginal propensity to consume is much lower for autos. Particularly, I think you can only sell trucks at high average transaction prices for so long before the cycle slows down. After a certain point, consumers are going to hold on to those pricey vehicles for awhile before upgrading.
While we might not be in a recession now, we certainly need to be mindful of the possibility in the future. Ten years without an economic downturn is a long time. It's not going to be a big surprise if things start to cool off. Rates (though not as high and all encompassing as many had feared), coupled with the general nature of economics, means it's inevitable. Ford does sell in China and Europe. These two markets are facing economic concerns. It's not easy to cut costs if these markets really start tanking. There will be expenses incurred regarding shuttering production and laying off workers. But the bread and butter most certainly still reside in the United States where their truck lineups are king. Moving forward, January sales results really need to be watched closely. If trucks falter again there could be a sour trend starting.
It's important to remember that Ford has a lot of capital on hand. The dividend is most likely safe; barring any crazy events. That is what will keep the stock relatively stable. Regarding share price appreciation, I'm skeptical that this one moves much for a while. Will you see the errant jolt as someone takes a big position? Sure you will. That doesn't mean it can find bullish sentiment. If you own this stock, be prepared for a long wait.