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Ford Could See Earnings Decline Into 2011

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On: Thu, Sep 23, 2010 at 12:51PM | By: Sherry Christiansen

Ford Could See Earnings Decline Into 2011

Credit Suisse has projected that Ford Motor Co. may continue to realize decreasing profits into 2011. Financial analysts project that Ford Motor Co. may possibly see a decline in profits from 2010 to 2011 as a result of increased cost for materials and structural costs, as well as the rise in future pension expense.

It seems that the cards may be stacked against automakers today in more ways than one. It’s not enough that a slow economy has negatively impacted automotive sales with the lowest level profits since the 80s; Ford now faces the possibility of a $900 million addition to the company’s pension expense.  According to a recent Automotive News article: “an earnings-per-share headwind of about 15 cents to 20 cents; if discount rates remain unchanged and asset returns do not improve, analysts, including Christopher Ceraso, said.”

"To the extent that Ford has been a great earnings momentum story, it will be difficult, in our view, for the shares to push higher in the face of declining earnings," analysts wrote to clients.

Analysts believe that Ford could possibly realize a “step-down” in profits from the financing arm of the company, Ford Credit, which has received benefits this year from gains on higher lease residuals as well as losses from slow repayment of credit accounts, which are at an all-time low.

An analyst with the institution that rates stock called “Credit Suisse” estimated Ford's posted earnings of $1.71 per share this year will decrease to $1.40 per share in 2011.

Ford Motor Company, the only automaker of Detroit’s’ “Big Three" that didn’t file bankruptcy or take a government bailout, has had other forecasters predict earning of up to $1.84 per share by the end of this year, and many analysts are estimating numbers for 2011 that are as high as $1.90 per share, according to “Thompson Reuters Smart Estimate,” in which top rated analysts calculate earnings by giving “more weight to recent forecasts.”

So the jury is still out as far as the future of Ford's profits; depending on which institutions and methods one puts stock in, the future may be shaping up, or look very bleak for the Detroit automaker.

Ford Motor company’s shares have fallen a total of 14% since April this year (Ford posted a 52-week high in April); the automaker’s stock closed at $12.55 on the New York Stock Exchange this week.


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