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Ford Motor Company Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: May 4, 2012 11:20AM
Ford Motor Company (F) filed Quarterly Report for the period ended 2012-03-31.
Highlight of Business Operations:Total Automotive pre-tax operating profit of $1.8 billion was led by Ford North America. Ford South America was also profitable, but Ford Europe and Ford Asia Pacific Africa incurred losses. The loss in Other Automotive mainly reflects net interest expense. It is $143 million favorable compared to a year ago, reflecting lower interest expense attributable to our 2011 debt reduction actions and the non-recurrence of market valuation losses associated with our investment in Mazda.
As shown above, first quarter 2012 wholesale volume and revenue increased from a year ago, improving 6% and 4%, respectively. Operating margin in the first quarter, at 11.5%, also was strong and significantly higher than a year ago.
As shown above, first quarter 2012 wholesale volume and revenue declined by 14% and 17%, respectively, compared with the prior year, reflecting primarily lower industry sales and production adjustments to maintain dealer stocks at appropriate levels. Operating margin was lower than a year ago.
With respect to "Changes in working capital," in general we carry relatively low trade receivables compared to our trade payables because the majority of our Automotive wholesales are financed (primarily by Ford Credit) immediately upon sale of vehicles to dealers, which generally occurs at the time the vehicles are gate-released shortly after being produced. In addition, our inventories are lean because we build to order, not for inventory. In contrast, our Automotive trade payables are based primarily on industry-standard production supplier payment terms generally ranging between 30 days to 45 days. As a result, our cash flow tends to improve as wholesale volumes increase, but can deteriorate significantly when wholesale volumes drop sharply. In addition, these working capital balances generally are subject to seasonal changes that can impact cash flow. For example, we typically experience cash flow timing differences associated with inventories and payables due to our annual summer and December shutdown periods, when production, and therefore inventories and wholesale volumes, are usually at their lowest levels, while payables continue to come due and be paid. The net impact of this typically results in cash outflows from changes in our working capital balances during these shutdown periods.
Looking ahead, we face both challenges and opportunities as we proceed on the path toward our mid-decade goals. One key opportunity is to accelerate the realization of the full potential of the global scale and operating margin benefits inherent in our One Ford plan. We also are focused on: sustaining and improving our already very strong operation in North America; strengthening and growing our profitable South American operation in the face of increasing competition and trade and other regional issues; responding to the near-term environment in Europe, while working to deliver sustainable and appropriate returns in this very important market through continued investment in great products, strengthening our brand, and improving our cost structure; executing our growth and profit plan for Asia Pacific Africa, including the launch of eight plants over the next several years that will support volume representing about one-third of our global sales by the end of the decade (compared to about 15% currently); and continuing the strong performance of our strategic asset, Ford Credit.
Stocks Discussed: F,