Ford Investors Sour on Automaker, Driving Down Shares, Bonds
Detroit, March 12 (Bloomberg) -- Investors are souring on Ford Motor Co.
Shares of the world's second-biggest carmaker fell 5.6 percent yesterday to $6.60, the lowest in a decade. The stock has lost about $18 billion in market value in the past 12 months, a 62 percent decline, compared with a 51 percent drop for General Motors Corp. and 38 percent for DaimlerChrysler AG's U.S. stock.
Prices have dropped to 70 cents on the dollar for Ford's 30- year bonds as investors demand more yield than for similar securities sold by Russia, which defaulted on domestic debt in 1998. Ford's 6.375 percent bond due in 2029 yields 9.3 percent compared with 8 percent for Russia's 5 percent bonds due in 2030.
``I think we're finally seeing the throwing in of the towel from Ford investors,'' said Lynn Yturri, a fund manager at Banc One Investment Advisors, which sold 100,000 Ford shares in December because of the automaker's performance. ``It looked for a while like Ford was going to turn around and now investors are just getting out.''
Ford, after $6.43 billion in losses the past two years, has said it will be profitable in 2003. Investors are skeptical of Ford's profit forecast because of declining sales and low-interest financing and rebates needed to attract buyers. Ford is the most vulnerable to a drop in sales expected in March and the further erosion a war in Iraq would cause, analysts said.
Meeting Chief Executive Officer William Clay Ford Jr.'s target of $7 billion in annual pretax profit by 2005 becomes less likely as demand dwindles, investors and analysts said.
`Credibility'
The Dearborn, Michigan-based company has forecast profit of 70 cents a share in 2003. Investors expect 50 cents, based on a survey of analysts by Thomson Financial.
``They've lost their credibility, they haven't delivered,'' said Gerald Meyers, a University of Michigan business professor and a former chief executive of American Motors Corp.
Ford executives say they are meeting cost-cutting goals. ``You name it, we're looking at it,'' Chief Financial Officer Allan Gilmour said in an interview.
Ford has said it plans to cut automotive costs by $500 million this year after absorbing higher pension and health-care expenses. ``I'm highly confident we'll get there,'' Gilmour said.
The decline in Ford's stocks and bonds shouldn't be taken as a signal the company is in danger of going out of business, said Scott Colbert, who holds Ford debt in $6.5 billion of fixed-income assets under management at Commerce Bank in St. Louis.
``I don't even see the word bankrupt as the remotest of remote possibilities,'' Colbert said.
`A Steal'
The company's 10-year notes are ``a steal'' at a yield of 8.3 percent compared with 3.6 percent for similar U.S. Treasuries, Colbert said.
The yield spread on Ford's benchmark 2029 bond has widened to 478 basis points, up from 400 last week and 214 basis points in June. The yield gap for benchmark 10-year bonds has widened to 470 from a low of 188 in late May.
The risk is that the company's credit ratings may be cut, said Brian Beargie, a corporate research analyst with Bank One Capital Markets Inc, which owns Ford bonds.
Standard & Poor's and Moody's Investors Service last week affirmed their ratings on Ford debt while saying they may be downgraded later. S&P's rating of Ford long-term debt is BBB, or two steps above non-investment grade. Moody's rating is Baa1, or three steps above non-investment grade.
`Junk'
``Ford bonds are trading like they're solidly junk already,'' Beargie said.
Colbert said Moody's and S&P will probably cut their ratings on Ford debt one level, leaving them at investment grade.
Ford's debt securities are the most widely held of any carmaker, with about $124.6 billion in notes and bonds outstanding. The company has more than $20 billion to repay in each of the coming two years, according to Bloomberg data. That compares with about $107.3 billion in outstanding bonds and notes at General Motors Corp., the world's biggest carmaker.
Stock-market declines, including a 31 percent drop for the Standard & Poor's 500 Index over the past 12 months, are also a threat to Ford's pension deficit of $15.6 billion at the end of 2002. That reflects higher pension expenses and a decline of assets in the company's pension plan.
Short Interest
Investors have sold short 76 million shares of the No. 2 automaker, up from 17 million shares the end of 2001. The stock has the largest short interest ratio of any automaker and is the 23rd highest in the S&P 500.
The company's shares may rebound should consumer spending resume, said David J. Williams, managing director at Excelsior Value and Restructuring Fund, which owns about 500,000 Ford convertible shares.
``My guess is that these shares will have some nice pop once consumer confidence picks up,'' Williams said.
No sales recovery is expected this month, however. Goldman Sachs analyst Gary Lapidus predicts a 7.8 percent drop in March to a pace that would total 15.4 million vehicles. In February, automakers sold cars and trucks at an annualized rate of 15.5 million, down from 16.6 million the year before.
``Weak March sales would be negative,'' for the industry, Lapidus wrote in a report. ``Particularly for Ford.'' |
