Recent reports suggest Ford could be on track to post a profit in the first quarter of 2010, but a turnaround may not be complete quite yet. Analysts suggest the automaker needs to post several profitable quarters in a row to show it’s on the fast track to fiscal stability.
“Ford needs to show six to eight quarters of solid results consecutively to show it is really turning the corner,” said Mirko Mikelic, a senior portfolio manager at Fifth Third Bank. Mikelic suggests that if the automaker accomplishes this goal, its equity bonds will do well, and the company will regain an investment grade rating — something it has lived without since 2005.
Although the automaker was able to post a $2.7 billion after-tax profit for the entire 2009 fiscal year, its quarterly results were a bit tumultuous. In its first quarter, Ford suffered a $1.4 billion loss, but posted a second-quarter profit of $2.3 billion. In the third quarter, the automaker witnessed a $1 billion profit, but only an $868 million profit in the fourth quarter of 2009.
Avoiding bankruptcy — a fate met by two of Ford’s American competitors — has helped the automaker draw in customers, but it is a double-edged sword. The company avoided Chapter 11 proceedings largely because CEO Alan Mulally mortgaged the company to the hilt in 2006. The company still carries $32 billion in debt, although it is moving to repay $3 billion of that sum in the next few weeks.
2009 may have been anything but consistent, but some analysts do believe it shows Ford is on the right path for sustainability.
“It’s progress and it’s a long-term job,” said Efraim Levy, an analyst at Standard & Poor. “The main thing is the trajectory is in the right direction.”