Ford, GM and Toyota Gear Up for Battle

BOSTON ( TheStreet) -- The world's largest carmakers ended 2010 on a high note, with two of the top three reporting their best monthly sales for the year in December, which portends strong fourth-quarter earnings and an even better 2011 for what has been a deeply troubled industry.

Over the past two years, the travails of Toyota ( T), General Motors ( GM) and Ford ( F) have included big layoffs and factory closings, bankruptcy and a government bailout in the case of GM, and massive recalls at Toyota, a brand once known for reliability.

The companies now face a new round of challenges in the form of rising fuel and raw-materials costs, which hurt profit margins.

Further complicating matters, domestic sales of passenger vehicles rose 1% last month, while sales of gas-guzzlers, pickup trucks and SUVs jumped 21%, despite the nation's rising fuel prices and an avowed interest in "greener," smaller, more economical cars.

International sales have proved a particular boon for U.S. automakers. GM sold more vehicles in China last year than it did in the U.S., a first in the company's 102-year history, while Ford's sales in China soared 40%.

Zacks Investment Research analysts say rising sales in December are indicative of a rebound in consumer confidence, since people are more inclined to make big-ticket purchases when they see rising employment, as it makes them feel more secure. As a result, Zacks projects industry-wide sales will rise 11.2% to 12.9 million vehicles in 2011.

Toyota, based in Japan, maintained its title of world's largest automaker in 2010, despite a 5.5% decline in December sales, with 8.42 million vehicles sold. That barely beat GM's 8.39 million in sales. GM racked up a 12% global sales gain on the year.

GM and Ford are expected to report solid fourth-quarter results as their December sales were their best monthly results for all of 2010.

Shares of automakers are up 4.3% this year, as tracked by Morningstar. The broader S&P 500 Index is up 3% this year.

What follows is a summary of earnings expectations for the three biggest auto makers, led by Ford, which will be the first to report on Friday, along with cars that may help profits the most this year.

Ford ( F), the world's third-largest carmaker, is due to report fourth-quarter earnings on Jan. 28 of 48 cents per share, flat compared with the third quarter, but better than the 43 cents of last year's fourth quarter. The quarterly results bring the earnings estimate for 2010 to $2.07 per share on revenue of $119 billion. In 2009, it lost 27 cents per share. The outlook for 2011 earnings is $2.19 per share. Ford passed Toyota to become the second-largest auto seller in the U.S. in 2010, due to a 6.8% increase in sales in December.

Although Ford continues to get more than 60% of its U.S. sales from trucks, sales of the Focus and Taurus are rising as the company has proven it can make quality, fuel-efficient vehicles that will compete with offerings from Toyota and Honda. (The Ford Fusion, pictured above, is an example of the company's renewed focus on quality. It was Motor Trend magazine's 2010 mid-sized car of the year.) After seeing sales pop 40% in China last year, Ford has committed $510 million to expand its operations in that country and $500 million in India as part of its Asian expansion plans.

But Standard & Poor's recently reiterated its "hold" rating, noting that although Ford gained market share for the second consecutive year in 2010 and should benefit from new products, "we think further strong market-share gains for Ford will be more difficult to achieve in 2011."

Goldman Sachs ( GS) recently gave Ford a "buy" rating and a six-month price target of $20, or a 20% upside potential.

A Morningstar analyst writes that Ford is "the only Detroit automaker with world-class reliability" as seen in its Ford Fusion and Mercury Milan, and that reputation is contributing to the sales gains.

And the company has better cost controls in place since it's building more models on common platforms, which will improve economies of scale. "This move will also allow Ford to switch production faster to meet changing demand," he said. Analysts polled by Thomson Reuters give it four "strong buy" ratings, seven "buys," seven "holds" and one "reduce."

Institutional investors own 66% of its shares. The company has a market value of $65 billion. The biggest investor by far is Evercore Trust Co., with an 8% stake at Sept. 30. Ford's shares quadrupled in 2009, rose 68% in 2010 and are up 7% this year.

Toyota ( TM), the world's biggest automaker, is scheduled to post earnings on Feb. 4 of 54 cents per share, roughly half of what it earned last year in its fiscal quarter ending Dec. 31. Revenue is expected to be $68 billion. For calendar 2010, it reported global sales rose 8%. In the previous quarter, its second fiscal quarter, it reported earnings of 73 cents per share. For 2011, its current fiscal year, analysts estimate the company will earn $2.35 per share and that that will grow by 77% to $4.17 in 2012.

Toyota views 2010's reliability issues as just a speed bump as it said last month that it's targeting global sales of 8.61 million vehicles for 2011, a 2.3% increase from 2010. It barely managed to retain its rank as world's biggest carmaker in 2010 as the series of recalls, on the order of 8.5 million vehicles, and the image-bashing in its wake, took its toll.

It will lose that title to GM in 2011 if current trends continue. For example, its U.S. market share fell to 15.2% in 2010 from 17% in 2009. But the Prius (pictured above), its gas/electric hybrid car, still dominates its market niche and Toyota hopes an expanded line of Prius models will further drive sales, spurred by rising gas prices. Analysts give Toyota one "buy" and two "buy/hold" ratings, according to Standard & Poor's. Toyota has a $131 billion market capitalization. U.S. institutional investors own less than 1% of Toyota's shares.

General Motors ( GM), the world's second-largest producer of cars and trucks, releases results on Feb. 9 and is expected to post earnings of 48 cents per share on revenue of $34.3 billion. For 2010, analysts estimate that GM will earn $2.90 per share on revenue of $132 billion.

GM's global sales rose 12% in 2010, including 6.7% domestically, helped by the Chevy Silverado (pictured above) and GMC Sierra. It saw an 8.5% rise in U.S. sales in December. GM is expected to maintain its sales momentum into 2011 as the U.S. economy regains strength and consumers their buying power. For 2011, analysts estimate that earnings per share will grow by 46% to $4.22 on revenue of $140 billion.

Among the many highlights of 2010: GM sold 2.35 million vehicles in China, a 29% increase, and about 136,000 more than it sold in the U.S., a company first. And in an example of how far GM has come in its turnaround, a week ago, the company said it will add 750 workers at a Michigan plant to keep up with demand for its pickup trucks.

International sales are expected to play an increasing role in GM's growth, and it's investing accordingly. Domestically, rising truck sales are good for profits, which carry much higher profit margins than cars, and internationally, its new line of subcompacts, such as the Chevrolet Sonic, are expected to drive big sales gains in China, Brazil and India. GM, which gained the nickname "government motors" for its federal bailout, re-listed its shares in a November public offering, almost a year and a half after emerging from bankruptcy protection.

General Motors raised $20.1 billion in the biggest IPO ever and used about $11.8 billion of the proceeds to pay back the U.S. Treasury on its $50 billion tab. The government's stake has since been reduced to about 37%, down from 61%, and that could fall to 33.3% if the full overallotment option is exercised by the underwriters.

Nevertheless, GM's shares are under a cloud, since some believe the company's management decisions could be influenced by political decision makers. S&P's poll of analysts resulted in six "buy" ratings, eight "buy/hold" ratings and four "holds." Shares gained 1% in 2010 and are up 1% this year. It has a market capitalization of $56 billion. Fidelity is GM's largest institutional investor by far, with a 1.7% stake at Nov. 30.

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