Ford Shareholders Meeting: Profit This Year, But No Dividend

After four straight profitable quarters, Alan Mulally’s forecast today of a “solidly profitable” 2010 shouldn’t come as a huge surprise. But, as Executive Chairman Bill Ford put it to Ford shareholders at the company’s annual meeting [via AP],

It is the very early days in our recovery. We still have a lot of debt

And he’s not kidding. As of the end of Q1 2010, Ford was carrying $34b in debt. And though Ford faces a higher cost of borrowing because of its staggering debts, Bill Ford was clear that he wouldn’t trade places with Ford’s Detroit competitors, which cleaned out their balance books, at the expense of government bailouts and accompanying PR problems. After all, while GM and Chrysler were rebuilding, Ford managed to outperform both of them last year by gaining sales and market share. And Ford’s leadership sees that momentum carrying forward into next year.

Alan Mullaly told stockholders [via BusinessWeek] that

We expect to see continued improvement in 2011. We’re clearly on a path now of profitable growth. The improving global economy is a slow gradual recovery especially in the United States, but with very solid fundamentals. Also, we’re bringing on more and more products.

But the news out of FOrd’s annual shareholder meeting in Delaware isn’t all good. After a meteoric rise in its stock price since hitting lows in the $1 range last year, Ford’s challenge is in convincing stockholders that more growth is still possible.Says Efraim Levy of Standard & Poor’s:

Ford has taken advantage of the weakness of their competitors, and now the challenge will be to continue to outperform them. They’re not out of the woods yet.

And that’s because so much money has been made on Ford stock since last year’s low, that pressure to sell is inescapable. One hedge fund manager who recently sold off Ford holdings for an average return of 275 percent explains:

The company is doing fantastic but I don’t know if there’s a lot of upside. When Ford’s outlook was very cloudy and not as positive, there were regular buy signals.

Further hurting chances of further growth in Ford stock is the news today that shareholders had voted down a plan that would redistribute the Ford family’s closely-guarded preferred-share voting majority to the rest of Ford’s shareholders. This is the sixth time such a measure has been voted down, although with 30 percent voting in favor, this time was the closest it’s ever been to passage.

Moreover, Ford will not institute a dividend for stockholders, despite the projections of profit. That decision underlines the importance of reducing Ford’s debt load. Bill Ford explains that

the most important thing we can do as a company is get the balance sheet in order.

But there’s more to running an automaker than merely attracting equity investment, and Ford’s operational strength means CEO Alan Mulally is the man of the hour at the Ford shareholder’s meeting. Bill Ford waxed effusive about the former Boeing CEO, who has rapidly become one of the most respected executives in the industry, saying

Alan has been completely superb for this company. We’d like him to stay as long as he wants.

And with profits looking likely this year and the next, Ford’s shareholders can rest assured that their investment is about as strong as any other in the auto sector… especially if they bought in at the $1-$1.50/share low last year.