No love for Ford on Wall Street

DETROIT -- Nine years after mortgaging everything it had to avoid collapse, Ford Motor Co. is earning more money than ever before, selling high-margin pickups and SUVs as fast as it can make them and developing ambitious plans to grow revenue even as cash-flush tech companies such as Google and Apple try to horn in on its business.

But Wall Street isn't sold on Ford executives' upbeat prognoses. Ford is poised to announce record pretax earnings this week, but as its profits grow, its stock price keeps sinking.

Last week Ford shares fell to their lowest closing price in more than three years. They've dropped 19 percent since January 2015, when CEO Mark Fields launched his signature initiative, Ford Smart Mobility, a plan to take the 112-year-old manufacturer into the realm of transportation services. After Ford said it would reward shareholders with a $1 billion special dividend, shares fell 5 percent the next day.

One analyst, Adam Jonas of Morgan Stanley, went so far as to compare Ford's talk of "huge opportunity" in a world of shared and self-driving vehicles to bullishness from Kodak, Blockbuster and other companies that crashed when new technology left them behind. Automakers are facing potential competition from businesses they have never had to be concerned with until now.

"I can't spin that positively," Jonas said this month at the Automotive News World Congress. "The stock market's like 'Hey, we've seen this before. This industry is incredibly ripe for disruption. The disruption's probably not going to come from the 100-year-old mechanical legacy.'"

Fields, Ford's CEO since mid-2014, bristled at the notion his management team is naive about the risks posed by Uber and other new ways for consumers to get around. "We get it," Fields told Jonas at a Jan. 12 conference hosted by Deutsche Bank in Detroit. "We are taking this very, very seriously as a company, and we want to lead in it."

So seriously, in fact, that Ford spent much of the Detroit auto show media days talking not about a new vehicle but rather about a smartphone app called FordPass. The company wants all consumers -- whether they own a vehicle or not -- to let Ford help them get around their city by using the app to reserve parking, call a personal assistant and pay for expenses incurred on the go. Fields said Ford wants to do for mobility what iTunes did for music -- and for Apple Inc., which was teetering toward bankruptcy in the 1990s.

The challenge for Ford is that there are myriad companies doing similar things, and many others that tried, failed and were quickly forgotten.

Ford's executive chairman, Bill Ford, said he's not afraid of missteps. Instead, he fears watching his family's legacy fade into the past if the company doesn't try to act in new ways.

"How do you define mobility? The short answer is we're not sure yet," Ford told reporters at the auto show. "We've got experiments going everywhere, and the one thing about experiments is some of them will fail, for sure, and the question then is how we deal with failure.

"If it's the old model where failure means you're going to be shut down and punished, we won't innovate at all. But if we say to ourselves 'What do we learn from this? What went well, and what can we use from this in a next venture?' then I think we're going to be in very good shape."

At the same time, Ford executives say they're not losing sight of their core business, which is thriving at a time when U.S. auto sales are at record levels. The talk of emerging business opportunities naturally invites unflattering comparisons to the follies of former CEO Jacques Nasser, who was so focused on making Ford a big player in e-commerce and car-related services that vehicle quality dropped.

"We are going to love our core business," Fields said. "We're not going to neglect it. I think in the past we may have done that."

Right now, Ford's core business is thriving. Ford said it earned its largest pretax profit ever last year -- at least $10.5 billion -- and would match or beat that in 2016. Ford made money in Europe for the first time in four years and posted its largest-ever North American profit in the third quarter of 2015. It plans to report fourth-quarter and full-year results on Thursday, Jan. 28.

But many analysts had even higher expectations for Ford's operating margins and cash flow in 2016 than its guidance suggested. A report from Brian Johnson at Barclays Capital labeled the news "quite disappointing."

David Whiston, an auto analyst with Morningstar, said he sees considerable upside at Ford but that investors have been rattled by the idea that auto sales could reach a plateau this year. As much as Ford is preparing for the future, he said, it's unlikely to generate significant cash flow or profits from mobility services anytime soon.

"The only thing they can do is take care of what's in their control," Whiston said. "Everyone's basically saying it's time to get out because the market's peaking."

John Casesa, a former investment banker and auto analyst who joined Ford last year as head of global strategy, said the fact that business is so good right now may be fueling the disconnect between Wall Street and Ford executives in Dearborn. He said investors may not see how much Ford has transformed itself until the next downturn.

"If our break-even point is low, we go through the next cycle and have a better experience, that'll probably be pretty powerful," Casesa said at the Deutsche Bank conference.

Harry Wilson, a former member of the Obama administration's auto task force, agrees.

"I think the market fundamentally misunderstands how different these businesses are than they were pre-crisis," Wilson said at the Automotive News World Congress.

While Ford experiments, General Motors has been moving faster to make big investments in the mobility arena, which may help explain why Wall Street hasn't reacted quite as negatively toward it. GM shares have declined about 13 percent in the past year.

This month GM unveiled the Chevrolet Bolt, an electric crossover with a 200-mile range, and announced a $500 million investment in the Lyft ride-hailing service. Last week, GM bought a failed startup called Sidecar and said it would launch a car-sharing venture called Maven in several cities.

Meanwhile, shares of Tesla Motors, which has yet to post an annual profit, are flat compared with January 2015. Jonas, the Morgan Stanley analyst, said at World Congress that he recommends selling shares of Ford but buying shares of Tesla -- even though he said Tesla hasn't truly disrupted the industry and can't sustain itself indefinitely just by selling fast cars to a small number of wealthy consumers.

Jonas' price targets -- $450 for Tesla and $15 for Ford -- would make Tesla worth about $2 billion more than Ford. He said Detroit has plenty of money and "smart people" but needs more "creative thinking" -- and "not just press releases and BS" -- to stay relevant amid the challenges from Silicon Valley.

Fields said he won't be discouraged by the lack of faith on Wall Street. Ford has been focused on growing its business, increasing margins, improving its risk profile and rewarding shareholders -- all factors that investors watch closely, he said.

"We're going to focus on continuing to drive the business forward," Fields said. "At some point we're going to get recognized."