Tax-related windfall boosts Ford’s profits

A tax-related windfall and strong US sales boosted Ford Motor’s 2011 earnings to their highest in 14 years. But the Detroit carmaker’s fourth-quarter performance was weaker than a year ago and below analysts’ estimates, weighed down by tough conditions in Europe, higher commodity costs, unfavourable exchange rates, and the floods in Thailand.

All regions outside North America posted weaker results in the final three months of 2011 than a year earlier. Ford shares slid 6 per cent in early trading to $11.99.

Ford’s widening loss in Europe came at the start of a fourth-quarter earnings season in which Fiat, PSA Peugeot Citroen, Renault and General Motors’ Opel/Vauxhall are all expected to be weighed down by the continent’s crisis.

Lewis Booth, chief financial officer, said the company was stepping up its drive to return the European operations to profitability. Among other measures, it may dismiss some temporary workers if slowing demand requires production cutbacks.

Mr Booth said it was unclear whether soft consumer demand in Europe would result in lower volumes or more aggressive discounting. Some carmakers have stepped up incentives in a bid to maintain sales and market share.

Ford expects global industry sales to rise to about 80m units this year, from 76m in 2011, with growth centred on North America and emerging markets. But Alan Mulally, chief executive, cautioned that volatile economic conditions could push sales as low as 75m or as high as 85m.

Even so, Adam Jonas, analyst at Morgan Stanley, told clients that “the fourth quarter looks like it was stuffed with items that reverse or normalise this year. 2012 may be shaping up to be a very good year for Ford.”

Fourth-quarter net income totaled $13.6bn, all but $190m of it due to a valuation allowance against deferred tax assets, based on its improved financial condition. Pre-tax operating profit fell to $1.1bn from $1.3bn. Net earnings for the year totaled $20.2bn, up from $3.3bn in 2010.

Like other carmakers, Ford has been bolstered by a rebound in US vehicle sales, especially high-margin pick-up trucks. Ford’s F-Series pick-up is North America’s top-selling vehicle by far.

Operating profit in North America grew to $889m in the fourth quarter, from $670m a year earlier. By contrast, losses in Europe more than trebled to $190m, earnings in South America tumbled by almost two-thirds, and Asia-Pacific swung from a small profit to an $83m loss.

Mr Mulally said competition in Brazil had intensified. “We are investing in every other region (outside North America)”, Mr Booth told the Financial Times.

“Over time you’ll see the results of all that work.” He cited several new models, such as the small Ranger pick-up and the small EcoSport sport-utility vehicle.

The fourth-quarter tax windfall stems from a valuation allowance against deferred tax assets taken in 2006 when Ford’s financial condition was deteriorating.

“This year we have had three years of profitability,” Mr Booth said. “We felt able to release the valuation allowance and bring it back onto our balance sheet.”