Ford: Failure to Communicate?

January 28, 2011

fordtruck11Here’s an idea for Ford — make sure that when you talk to The Street that The Street is listening.

The shine on the Blue Oval got smudged Friday as shares fell as much as 15 percent after its fourth-quarter profit missed estimates by almost 40 percent. Why? Analysts were apparently blindsided by more than $1 billion jump costs in the fourth quarter compared to the third.

It was the first time Ford fell short of estimates in two years, and the miss upstaged what was an otherwise notable year. Ford reported its best annual income in more than a decade and had more cash than debt in its automotive operations, a key milestone it has aimed at hitting for more than a year.

During Friday’s earnings conference call, analysts and journalists peppered CEO Alan Mulally and CFO Lewis Booth with variations on the same question: what happened?

Mulally stumbled over his words a bit before saying simply: “We could have communicated maybe a little bit better on that.”

In fairness, Ford had flagged a $1 billion jump in both structural and commodity costs as early as July during its second-quarter earnings call.  It repeated its outlook in October.

But analysts didn’t seem to take those early cautions seriously. In an October 27 note, Credit Suisse analyst Chris Ceraso accused Ford of “some sand-bagging” because the threatened cost increases hadn’t shown up yet. And Ford beat third-quarter expectations on lower-than-expected costs.

Ceraso even cut his forecast for material and structural costs in 2011. “Fool me once, shame on you; fool me 6 times, lock me up!” he wrote.

He was probably tired of being wrong. Analysts have routinely underestimated Ford’s results. In the five quarters before the latest report, Ford trounced estimates by as much as 117 percent.

“We are going to work even closer to make sure that everybody understands where we are and where we are going,” Mulally said. “It is a great story and we’re going to tell it a little bit better.”

By Deepa Seetharaman and Bernie Woodall

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