Ford Motor Co
The automaker will post a one-time gain of about $13 billion after it eliminates a tax reserve created in late 2006 when Ford was in the early stages of a turnaround under Chief Executive Alan Mulally.
The tax-related boost may push Ford's 2011 net income to more than $20 billion, its best annual profit since 1998, when it earned more than $22 billion during the SUV boom and after it spun off its stake in Associates First Capital Corp, a consumer and commercial lender.
The elimination of the tax reserve, known as a valuation allowance, reflects Ford's confidence that its financial prospects have improved markedly under Mulally, who is credited with steering Ford from collapse.
Excluding the one-time gain, Ford is expected to earn $1.84 per share for 2011, according to the average analyst estimate provided by Thomson Reuters I/B/E/S. This would mark Ford's third straight annual profit under Mulally.
Analysts, on average, expect Ford to report an adjusted profit of 25 cents per share for the fourth quarter. Revenue is expected to be a little more than $32 billion.
The quarter will shed light on the sustainability of, or potential for improvement in, North America automotive pretax profits, Barclays Capital analyst Brian Johnson said in a research note.
In late 2006, Ford created the valuation allowance because it forecast losses in its North American, Jaguar and Land Rover operations that made it impossible to take advantage of some deferred tax assets. Eliminating the valuation allowance also means Ford will pay taxes at a higher rate.
Now nearly six years into its comeback, Ford has reached a new juncture in its recovery that centers on preserving the value and profitability of top-selling models like the Fusion midsize sedan and finding a successor for Mulally, now 66.
EYES ON 2012 OUTLOOK
Ford shares fell 36 percent in 2011, while the broader S&P 500 index ended the year unchanged. Shares of Detroit rival General Motors Co
Analysts cautioned that Ford faces a shaky auto market in Europe and slowing growth in Asia in 2012. Funding levels for Ford's global pension plan likely deteriorated in 2011, hurting Ford's value, Buckingham Research analyst Joseph Amaturo said.
Still, other analysts said Ford will benefit from its exposure in North America, which made up nearly 60 percent of its revenue through the third quarter. Commodity prices, which hurt third-quarter results, are likely to be less volatile.
Ford also expects to gain market share in the midsize sedan segment with the 2013 Fusion, which Morgan Stanley analyst Adam Jonas called the star of the Detroit auto show.
In the fourth quarter, deadly floods in Thailand forced Ford to close a Ford-Mazda Motor Co joint venture plant for weeks. As a result, the company will report a loss in the Asia Pacific region in 2011 instead of a profit.
Ford will also pay $280 million in signing bonuses to its 41,000 workers represented by the United Auto Workers as part of a four-year labor pact signed by the UAW and Ford early in the fourth quarter. The settlement of the union contract helped clear up investor uncertainty over Ford's labor costs.
(Reporting by Deepa Seetharaman; Editing by Steve Orlofsky)