Ford Beat EPS Estimate, Retired $7B Debt; $F Call Options, Stock Realize Value On Week (Technical Analysis)

Ford reported second quarter net income of $2.6 billion or 61 cents per share, up $338 million from second quarter 2009. Pre-tax operating income totaled $2.9 billion or 0.68 cents a share, up $3.5 billion from second quarter 2009. Ford beat the Bloomberg consensus estimate of $0.41. They unlocked vehicle value, read this Bloomberg article:
"Mulally is boosting profit by reducing discounts while selling new models such as the Taurus and Fiesta subcompact with more options that fetch higher prices.

Buyers paid an average of $30,309 for Ford cars and trucks in June as they splurged on extras like voice-activated phones and stereo systems, according to Edmunds."

Before I get into the $F chart and option activity that made traders cheese, here's a summary of their earnings release including net income, revenue, cash, debt, interest costs, liquidity and overseas numbers. View the full release to see their outlook.

Ford financial results summary snapshot from 8k

DEARBORN, Mich., July 23 /PRNewswire-FirstCall/ --

* Ford reports second quarter net income of $2.6 billion, or 61 cents per share, a $338 million improvement from second quarter 2009. Pre-tax operating profit totaled $2.9 billion, or 68 cents per share, a $3.5 billion improvement from second quarter 2009 and a $932 million improvement from first quarter 2010++

* Ford Automotive operations posted a second quarter pre-tax operating profit of $2.1 billion, a $3.2 billion improvement from second quarter 2009 and $872 million improvement from first quarter 2010

* Each Automotive business operation reported a profit for the quarter and showed improvement compared with a year ago; Ford North America reported second quarter pre-tax operating profit of $1.9 billion, a $2.8 billion improvement from second quarter 2009 and $645 million improvement from first quarter 2010

* Revenue for the quarter totaled $31.3 billion, up $4.5 billion from second quarter 2009; excluding Volvo revenue from 2009, the revenue increase was $7.4 billion, or over 30 percent++

* Ford ended the quarter with $21.9 billion of Automotive gross cash and total liquidity of $25.4 billion. Automotive operating-related cash flow was $2.6 billion positive

* Ford retired $7 billion of debt ($3.8 billion to the UAW Retiree Medical Benefits Trust and $3 billion of the company’s revolving credit facility), lowering annualized interest costs by more than $470 million. Ford ended the quarter with $27.3 billion in Automotive debt

* Pre-tax operating profit in the first half equaled $5 billion, a $7.5 billion improvement over first half 2009++

* Ford Credit reported second quarter pre-tax operating profit of $888 million, a $242 million improvement from second quarter 2009 and a $60 million improvement from first quarter 2010

* Ford is on track to deliver solid profits in 2010 with positive Automotive operating-related cash flow, and continued improvement in 2011

* By the end of 2011, Ford expects to move from an Automotive net debt position to a net cash position (PR Newswire at Yahoo Finance)

More second quarter 2010 highlights from the 8K filing:
* Reported a 21 percent sales increase and gained a half-point of market share in the U.S. on strong retail market performance of Ford’s products, including the F-Series, Taurus, and Transit Connect
* Posted a 27 percent sales increase in Asia Pacific Africa, including a 20 percent increase in China
* Tripled quarterly sales in India, setting a new record, as the new Ford Figo received 25,000 orders in its first 100 days on the market
* Ford solidified its position as Canada’s top-selling brand, expanding market share to 17.5 percent, up 2.1 percentage points from a year ago

Ford Q2 Earnings Release / SEC 8K Filing -
Ford Posts $2.6 Billion Second-Quarter Profit on Pricier Cars - Bloomberg
Ford Profits Improve $3.34B - Zacks Investment Research
Ford Motor Co. Q2 2010 Earnings Call Transcript - SeekingAlpha
Ford Is Slowly Climb - Forbes
Ford’s Rebound Rolls on as It Posts $2.6 Billion Profit - New York Times
Fill Up on Ford - Barron's
Palladium, platinum rise on improving auto sales - AP
Ford Just Keeps Rolling - Motley Fool
Ford Continues to Roll - Market News Video
Ford turnaround picks up speed - CNN Money
Ford Handily Tops Profit and Sales Expectations - CNBC
Ford profits hit six-year high -
Ford posts higher profit, optimistic for strong 2011 - MarketWatch
Obama to visit Big 3 plants in Mich., Ill. - AP

Mulally Sees Terrific 2010 for Ford, Even Better 2011: Bloomberg Youtube Link

From July 14 up until the earnings release I had 3 posts analyzing the Ford chart and option activity: 7/14: big call volume opened on the ISE and overall, 7/20: inflection point, use put hedge, 7/22 $F sees Aug put volume > open interest (hedge or short) and calls opened again on ISE. As you can see call options were setting up at the inflection point in size. Overall, being net long the stock and/or calls into earnings was a great trade.

From my July 14 post, the call options from the close increased 50% (minus put hedge write offs). I took snapshots of each option chain that day focusing mainly on volume. In this case I'm only looking 2 months out. There could've also been a decent vertical call spread in January 2011 from $12.50-$15. $F closed at $12.72 so strikes $12 and above wouldn't be profitable if exercised for stock (not yet at least).

August $11 Call: 1.05 -> 1.80 = +71% 
August $12 Call: 0.52 -> 0.98 = +88%
August $13 Call: 0.21 -> 0.35= +66%

September $12 Call: 0.76 -> 1.17 = +54%
September $13 Call: 0.41 -> 0.60 = +46.3%
September $14 Call: 0.23 -> 0.25 = +8.6% (far out of money strike)
September $16 Call: 0.06 -> 0.03 =  -50% (far out of money strike, could've been sold in spread)

January 2011 $12.50 Call: 1.09 -> 1.50 = +37% (part of vertical spread?)
January 2011 $15.00 Call: 0.40 -> 0.52 =  +30% (if spread would be +117% if price < $15 by Jan)

If $F runs into $15 resistance these options could more than double (depending on July auto sales and the macro picture). If you owned Ford stock (F) since July 14 you'd be up 7.7% (without hedges). The Dow Jones US Auto Index rose 8.2%, so if you had long exposure to the auto industry you would've killed the S&P by 7%. $SPY, the S&P ETF, increased 0.74% in those 9 days.

Ford Motor ($F) vs. Dow Jones Auto Index and S&P ETF (SPY) -

Now for some technicals. Look at the potential ceiling resistance level in DJUSAU (DJ Auto Index) at 145.93. The ultimate resistance to break is 163.33. The index is currently above the 50 and 200DMAs, in a steep upward channel, above the Chaikin Money Flow and MACD midlines (not sure if it's above the previous high).

Ford (F:NYSE) broke through ceiling resistance as you can see. The ultimate ceiling resistance level to break is the high $14s. You don't see it well but F stayed inside a huge long term ascending channel. It almost broke it a few days ago, so watch out for that line on weakness. F is above the 50 and 200 day moving averages and above the Chaikin Money Flow/MACD midlines. The money flow index and MACD took out downtrends. We'll see *if* the so called second half slowdown was already priced into the auto space, or if commodity costs run amok and ruin the party. Don't be surprised if there's a retest of new support. GO FORD. Who is GM?

DJUSAU-X (Dow Jones US Auto Index) -

Ford Motor Co. (F:NYSE)

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