Stocks | Jun 20, 2007 | 0 Comments

Ford – Troubled Company, Troubled Stock

Ford (Symbol: F) has been a declining company for some time. Over the past few years, it’s become even more evident as sales of their bread and butter vehicle, the F-series truck, have fallen—and show no signs of improvement. The stock closed at $8.86 on June 20.

With gas prices showing no signs of a pull back, many consumers are looking for vehicles with good to great MPG numbers. Many are moving away from trucks and S.U.V.’s.

Ford’s Main Product Declining

In a recent NY Times article “Caution: Lower Truck Sales Ahead,” it talked about automakers expecting pickups to post their lowest sales in 2007 since the decade began. According to the article, trucks and pickups account for 24% of Ford’s sales and 41% of the gross profits in North America over the past five years.

This decline was the big reason why Ford had a $12.6 billion loss last year, the article said. Again, we can forecast where this is going by looking at gas prices, where they are heading and by gauging consumer sentiment.

Think about this. In 2006, Ford sold 796,039 F-Series trucks. That’s a decline of 49,567 (6% annually) from numbers just three years prior. From 2000-2006, sales of the F-Series declined just over 9% annually. January 2007 sales of the F-Series were 44,919, which was a 14.9% decline from sales in January 2006.

The auto & truck manufacturers industry as a whole has a one-year EPS growth rate of 17.23%, yet Ford’s one-year EPS growth rate is -871.87%. The next earnings announcement will be July 19, 2007, and estimates expect Ford to announce a loss of 40 cents per share.

Consumer Breakdown

Let’s step away from the numbers to look at consumer demand. Tonight, while watching some TV, I saw about 50-60 auto commercials. Of those, there were only three auto commercials with relation to Ford—Land Rover, Mazda and Ford.

Marketing-wise, Ford is getting beat up. Furthermore, where’s the demand at with consumers? Lincoln, according to a MSNBC report, is Ford’s best overall brand as far as popularity goes. The others—Ford, Mercury, Jaguar, etc—are nowhere to be found among popular brands.

Gas prices aren’t pulling back, and most consumers are fed up with the $3+ per gallon price tag. The result is many consumers going to dealerships looking for vehicles with better fuel economy. In that NY Times article, it mentioned Ford’s trade data, which is showing that F-Series owners are trading down to more fuel-efficient vehicles.

What happens when the product that fuels your company loses its luster and begins to go belly up? That’s exactly what’s happening to Ford.

How much of Ford’s sales are based on the “It’s American” perception? Ford has been working to close down North American manufacturing plants. It recently announced that its Cleveland casting plant will be closed in 2009. As Ford continues to build plants overseas, will this hurt sales?

Ford Can’t Sell Brands

Ford is having trouble selling some of its brands. In May, it was reported that the Volvo brand was up for sale. It’s still for sale, but it was reported that BMW might be interested.

Last week it was reported that Ford couldn’t sell Jaguar and Land Rover. Ford has hired investment banks to facilitate sale options. Will Ford shed Jaguar, Land Rover and Volvo?

All three of these brands have just over 50% of their sales in Europe. According to Ford’s 2006 company report, Jaguar, Volvo and Land Rover accounted for 697,373 sales.

Why is this important? If Ford can trim down to involvement with a couple of brand lines (Ford, Lincoln, Mercury, and Mazda) and increase their financial services, they could slow or possibly stop the decline.

Where Ford’s Stock Goes From Here

I think you have to look at all these indicators as a sign that Ford’s stock will at best remain flat—around the $8.50-$9 range. Ford isn’t bringing exciting vehicles to the market and it’s behind the curve for producing next-gen vehicles—unlike Toyota.

I’m looking for a flat or slightly better than 2006 performance from Ford. However, 2006′s EPS was disastrous, so that’s not saying too much.