Standard & Poor's (S&P) Ratings Services has upgraded its outlook on Ford Motor Co. (F) to “Positive” from “Stable.” The revision is based on the company’s performance in North America which generated higher cash flow and profits. The agency also believes that the company’s initiative in restructuring the European operations will be profitable even in a weak sales scenario in the region.
Ford’s North American operation has recorded a 1% growth in revenues to $19.7 billion in the second quarter of 2012. Pre-tax operating profit improved 5% to $2 billion from $1.9 billion a year ago due to higher net pricing, improved contribution costs and other factors, partly offset by higher structural costs and unfavorable volume and mix.
However, the company posted a 39% fall in profits to $1.20 billion or 30 cents per share in the quarter from $1.98 billion or 49 cents per share in the corresponding quarter of 2011 due to lower operating results in all the regions except North America. However, the earnings per share were higher than the Zacks Consensus Estimate of 28 cents.
S&P rating service, however, retained its credit rating to "BB+." The credit rating can be upgraded to "investment grade" if the company further improves its profitability across the regions.
Meanwhile, Moody's and Fitch Ratings have raised the company’s credit rating from junk status to investment grade. Ratings upgrades will help the company in lowering its borrowing costs and increase the number of buyers for its bonds.
In addition, Ford reclaimed custody of its renowned blue oval logo following the upgrades. The logo was used, along with factories and other assets, as collateral to acquire a loan of $23.5 billion in 2006. With this, the company survived the bankruptcy along with the great recession and financial crisis.
Michigan-based Ford Motor Co. is one of the largest automobile producers globally. The company is divided into two segments: Automotive and Financial services. Its core and affiliated automotive brands include Ford, Lincoln and Mercury. Although the U.S. is Ford’s primary selling ground, Europe, South America and Asia-Pacific constitute its other major markets.
Currently, Ford retains a Zacks #4 Rank, which translates into a short-term (1 to 3 months) Sell rating. We have a long-term Underperform recommendation on the stock.
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