Ford Is Hauling a Heavy Debt Load

Tickers in this article: F GM

NEW YORK ( TheStreet) - - Ford Motor

Ford's third-quarter earnings report on Oct. 24 showed a record $2.6 billion pre-tax profit, reflecting continued strong performance in North America and a combined profit from the regions outside North America. In addition, the company's financial arm, Ford Credit, remains solidly profitable.

Total company third-quarter pre-tax profit was $426 million higher than a year ago. Third-quarter earnings per share of 45 cents was 5 cents per share higher than a year ago. By comparison, GM's third-quarter "net income attributable to common shareholders" declined to $757 million, or 45 cents a share, compared to $1.48 billion or 89 cents a share in the year-ago quarter. Net income for Ford's third quarter of $1.3 billion, or 31 cents per share, was down $359 million, or 10 cents per share, compared with a year ago due to pre-tax special item charges of $498 million.

This was Ford's 14th consecutive quarter of positive operating-related cash flow. It now boosts strong liquidity of $37.5 billion, an increase of $400 million from the end of the second quarter.

But what about the long-term debt Ford carries on its balance sheet?

As of the end of 2012 the total long-term debt had swelled to over $105 billion. As of the end of September 2013 that number grew to a staggering $108 billion.

In all fairness to Ford, it didn't go after -- or receive -- a government bailout like its rival General Motors. GM was able to emerge from bankruptcy only after receiving $49.5 billion from the federal government in 2009.

At the end of 2012 GM had long-term debt of only $3.42 billion and "other liabilities" of slightly more than $55 billion. As of the end of the second quarter 2013 the company reported its "total debt" of $26.75 billion and total cash of $24.20 billion.

Ford reported, at the end of its third quarter, total cash of $25.74 billion with a book value per share of $4.87 (most recent quarter), compared to GM's $19.99. Both Ford and GM are making progress in their goals to achieve profitability in Europe by 2015, but only Ford could report record third-quarter profits for all of its Asia-Pacific-Africa regions.

From a shareholder's perspective, it still pays to own Ford stock, which offers a dividend yield of 2.31%. This is not only sustainable but, with a payout ratio of only 20% of operating income, I would anticipate the dividend to be increased by the end of 2013.

If I owned shares of Ford or GM (and I don't) I'd set up a trailing stop loss alert system like the one offered by TradeStops to provide a type of " safety net " underneath my positions in both companies. This provides investors an exit strategy they can live with and a plan to limit downside risk and unacceptable losses.