Ford Motor Co. made its big restructuring announcement yesterday and fortunately my job is not affected. In the announcement it was stated that the company would no longer release quarterly earnings guidance. My guess is that means they will no longer publicize their projected earnings but what does it *really * mean? If it is not an SEC requirement to release these figures then why would they announce that they won’t release them? Why not just keep quiet and not release them? What is the bigger picture here?
That IS kinda’ creepy.
This is not the kind of news that boosts your stock.
My thoughts:
Scenario One:
- Ford has lots of uncertainty in its crystal ball.
- The powers that be at Ford don’t wish to be liable for the murkiness of the crystal ball.
- Ford can’t lie if it doesn’t talk, and is willing to take the hit to its stock based on this.
Scenario Two:
- Ford isn’t worried about its earnings next quarter. Or next year.
- Ford is deathly afraid it will go bankrupt within the next several years.
- Ford wishes to focus on pure survival, and intends to focus purely on that goal. Worrying about quarterly numbers would just distract them from what matters.
Scenario Three:
- Ford’s finances are teh suck right now, but it may be able to turn its boat around in this fiscal year.
- If Ford published its quarterly numbers prior to its turnaround, suppliers, lenders and shareholders would jump ship faster than a cockroach can turn around. An inability to borrow or raise money via stocks combined with suppliers going to COD on shipments would kill many companies. I’m not sure how long Ford would last, but I’m not buying a new car with a warranty that won’t be good by the time I make my second payment…
- Ford hopes that by keeping things calm, it has a chance to turn around before its next annual guidance.
Scenario Four:
- Ford has reached a principled decision that investors should be buy and hold, not focused on the short term.
- So, they’ll stop fooling with quarterly guidance. Short-term thinking only hurts the American economy!!!
- I suspect Osama bin Laden delivering cherry pie and strippers to my house tonight is more likely than this scenario. Hmmmm… 74 virgins. When come back, bring Jihad.
Let me know if there’s a scenario five that makes more sense.
I’m guessing Scenario One. Stocks can really take a pummelling if actual earnings aren’t in line with the guidances originally given out. Companies get penalized for not delivering what they say they will.
It’s not a req’t, but imagine the stmpede for the exit if they just stop giving guidance without explaining anything. Note that Intel did something similar last week. They used to give mid-quarter updates to their quarterly guidance, but said they would no longer do that. US companies are constantly being criticized for not taking the long term view. IIRC, for instance, European companies typically only report earnings twice per year.
I think the Ford spokeman was misquoted. I think he really said “my guidance is Ford will not have future earnings.”
For odds of this having happenned, consult Scenario 4, verse 3.
Mr. Slant’s scenario three seems to ring most true to me (with scenario two looming ominously in the background). What John Mace says makes a whole lot of sense too. I guess that earnings guidance must have been pretty beneficial in the days of pets.com but can be pretty distracting these days. In that respect, announcing up front that you’re not going to play that game anymore makes sense. Thanks for the input.
I don’t think they’re too concerned with the stock price taking a hit right now. It’s trading at around 10 bucks a share.
The biggest reason (and folks have already mentioned it) is that the stock price would take a hit as the quarter passes and nothing comes out. The company has offered earnings guidance in the past and so its expected that it will come out in the future. Analysts are incredibly spoiled and tend to go ape if thngs don’t follow a predictable plan. They will still publish quarterly numbers but it will just be a surprise.
The big picture is that Ford management doesn’t really know how the next few quarters will progress. Over the next couple of years there will be so many ‘extraordinary’ or ‘non-recurring’ items that who knows where earnings (or the lack thereof) will be. Those are going to be items related to plant closure, severance, and re-tooling.
Since they really have no idea, why make a wild-ass guess that would end up being wrong?
Well… part of the announcement included these details:
[ul]
[li]Charges for closing 7 plants before 2008.[/li][li]Charges for closing 7 more plants.[/li][li]Charges for buyouts.[/li][li]Charges for continuing to pay idles workers in the gen pool (jobs bank).[/li][li]That’s a lot of net outlays.[/li][li]There’s no more income from Hertz, since Ford sold it.[/li][li]They announce a new, low cost assembly plant to be built. Does that mean refurbing Cuautitlan? Does that mean building in a right-to-work state? Does that mean adding another plant to Rouge? Adding another plant or reburbing the unused truck plant in the complex in Oakville? A low cost plant is still expensive.[/li][li]Continuing expenses for some of the labor extortion fees in the US.[/li][/ul]
They also announced that they’d stop the market share loss but not squeeze out an increase yet. So that’s still a lot of cash expenses with very little additional inflow. The expectation is that there be no North American profits at all in the near term; globally Ford may eke out a profit, but I think they already announced that they didn’t expect to at all. Therefore it seems logical to me that they keep quiet rather than publically expect losses for the next two to three years. The effect, then, is that planning and stock purchases should be made for the long term. Ford explicitely stated that this was a long term recovery plan, and not just a fire-everybody-bandage type of deal (although Ron Gettlefinger makes it sound that way – putz!).
Keep in mind that Ford’s troubles are in North America. It’s meeting every projection outside of North America except for Jaguar, which has its own labor relations reason. Ford has made a net profit again for 2005. If Ford were really, really hurting, it could just stop doing business in North America altogether and be a very, very successful company. It’s a credit to them that they attempt to stay profitable rather than destroying thousands of more lives than will be affected by the current reorganization.
Heh. As someone who worked for a delisted company, believe me. It can still go down from there. :o
That’s low, $10. Really low. The worse news is it’s not even at $10. Googling the letter “F” yields:
8.34 -0.06 (-0.71%) 25 Jan at 1:33PM ET
Open: 8.42
High: 8.44
Low: 8.29
Volume: 10,269,600
Avg Vol: 23,126,000
Mkt Cap: 15.34B
Yeah but the P/E is also 8. Guaranteed 12% profit :dubious:
Oakville is where I work and the new flex plant to replace the truck plant is almost complete. With the stock trading so low might now be the time for me to throw a few discretional bucks into it?