Ford reported their Q1, 2011 results and the American automaker posted its best first-quarter profit in over a decade. Investors need to go back 13 years to see better first-quarter results from the company. Ford has made huge strides in the past two years, putting more stylish and fuel friendly vehicles. Consumers seem to be flocking to the brand. Ford said its profits rose 22% to an incredible $2.6 billion profit. its best first-quarter performance since 1998. This represents eight straight quarterly profit announcements by Ford.
The continued success of Ford has shares trading near $16, a stark reversal from a low of $14.01 just over a month ago. Savvy investors in early March have been able to lock in gains of nearly 15% during that period. With auto sales continuing to climb back up to a Seasonally Adjusted Annualized Rate (SAAR) of 13 million, Ford should be able to continue their profitable trend. Last month Ford was the top selling brand in the U.S., ousting GM from a position they have held for years.
One amazing aspect of what Ford is doing is that the company, even in tough economic times, has been able to raise the average cost of their vehicles by over $250. Consumers seem to be seeking better style, better fuel economy, and more technology in the car. Ford has accomplished all three.
While the profits for Ford look good, not all of the news is rosy. The Lincoln brand is saw sales slip by 11% in the first quarter. Ford has stated that they are revamping the line and hopefully they can bring that fresh style to Lincoln in the next two years. If Ford can bolster Lincoln sales, investors could see profits climb even further.
One of the keys to Ford’s great performance over the past year and a half has been a disciplined approach to production and inventory management. Ford Chief Financial Officer Lewis Booth said, “We trying to be very disciplined and won’t produce more than we can sell.”
Another positive direction the company is taking is debt management. After borrowing $26 billion in 2006, the company has managed to trim that number down to $16.6 billion. In Q1 the company shaved $2.5 billion in debt off of the books. This continued debt discipline not only improves the balance sheet, but also helps the company with their all important credit rating, ability to refinance, and ability to borrow if required. The company currently has over $21 billion in cash.
The March 11 earthquake in Japan, which many seem to feel American brands are immune to, did have some impact on Ford. The company lost production of about 14,000 vehicles at plants in Asia, and had to close three plants this week due to a lack of parts. The impacts state-side are even more minimal, and the lost production should not make material impacts to Ford’s bottom line.
What we have with Ford is a company being smart about every aspect of its business. While these great numbers are sometimes offset by the company managing debt, the picture remains clear and the company vision unwavering.