This summary is based on the fourth quarter fiscal 2006 earnings call conducted by Ford Motor Co. (F: chart) on January 25, 2007.
Key Investors Issues
- The total fourth quarter loss was $2.1 billion.
- Depreciation and amortization increased by about $100 million.
- Pension and retiring health care expenses were $500 million lower than 2005.
Fourth Quarter Highlights
Special items reduced earnings by $3.8 billion pre-tax in the fourth quarter and primarily reflected a charge of $1.9 billion for personnel reductions, mainly related to the enterprise-wide buyout. In addition there was a charge of $1.4 million for pension curtailment related to the North American hourly separation programs.
The company continues to reduce personnel outside of the U.S., and charges for this were $420 million. These were mainly at Volvo, Ford Australia, and Jaguar and Land Rover. The total fourth quarter loss was $2.1 billion - that included a loss of $2.5 on the auto side, and a profit in financial services of $416 million.
Warranty expense was $100 million unfavorable.
This reflected favorable coverage performance at North America but this was more than offset by higher cost at Jaguar and Land Rover, where the company made some accrual adjustments related primarily to prior models.
- Manufacturing and engineering costs were about $1 billion favorable.
- Net product costs were flat compared with 2005 levels.
- Depreciation and amortization increased by about $100 million and this was more than explained by the acceleration of depreciation associated with announced plant closings.
- Pension and retiring health care expenses were $500 million lower than 2005 reflecting primarily retiree health care agreement with the union and improvements related to revisions to salary benefit plan, reducing the discount rate and long term expected return assumptions. Overhead costs were $400 million favorable. The cost of advertising and sales promotions was up $300 million.
North America whole sales were down by 214,000 units to 626,000.
Net decline is explained by decision to reduce dealer inventories by over 160,000 units as well as lower market share. Revenue was $15.1 billion. That is down $6.3 billion from a year ago. That decline reflected lower volumes, higher incentives and a higher mix of passenger cars. More than half of this decline reflected a reduction in dealer inventories and the loss was $2.6 billion worse than in 2005. The largest causal factor for the 2.6 volume decline is volume and mix, reflecting lower dealer inventories, unfavorable mix and lower market share. These total $1.9 billion. Net pricing was $1.2 billion unfavorable, largely reflecting higher incentive spending. These market factors were partly offset by about $300 million of cost reductions, reflecting lower output expense and lower manufacturing and engineering costs.
- U.S. market share for Ford and Lincoln Mercury had a strong retail share in September and there was some pay back in the fourth quarter, and in total second half retail share was about 11%.
At the end of December the company has reduced r salaried equivalent positions to 37,700, a reduction of 4800.
Hourly employment excludingACH was 77,900, that’ is a reduction of 7,700 from the end of 2005. Plan is to operate with 55,000 to 60,000 employees by the end of 2008. There were 11,100 ACH hourly employees at the end of last year. That is a reduction of 2800 at the end of 2005. A further 1,000 have already left this year. Plan is to sell or close all of the ACH facilities by the end of 2008. The company has reached agreement in principle to sell three facilities, and announced plans to close four additional facilities.
The company has reduced maximum installed capacity to 4.1 million units, down 700,000, and straight time man capacity of 3.4 million units.
By the end of 2008 the company will reduce Max installed capacity to 3.6 million. The WIC Sam assembly plant is scheduled to stop production in the second quarter of this year. Later this year the company will idle the Norfolk assembly plant and eliminate shifts at St. Thomas and Michigan truck, and will be adding a third crew at the Dearborn truck plant. Reduced man capacity in this manner allows the company to achieve major cost savings while allowing plant idlings to be coordinated with product changes.
South America whole sales were 106,000 units, up 17,000.
- Revenue was $1.7 billion compared with $1.3 billion in 2005.
- South America posted a pre-tax profit of $114 million, down from a year ago.
- Europe whole sales were 494,000 units, up 22,000. Fourth quarter market share was 8.3%. That is up 4/10ths of a point compared with 2005. Revenue was up $900 million. Fourth quarter profit of $432 million was an improvement of $208 million compared with a year ago. That is primarily explained by higher volume. In the fourth quarter and full year results included the favorable impact of about $90 million from several non-recurring factors that individually were immaterial but were largely all in the same direction. Practice
