Ford Motor Co. (F) announced that it will repurchase up to 116 million shares. These share repurchases will offset the impact of share dilution and help improve shareholder returns.
About 103 million of these shares will be repurchased to offset the dilutive effect of potential conversions of Ford’s 4.25% senior convertible notes due Nov 15, 2016. Starting Nov 20, 2014, Ford can terminate the conversion rights of the holders of these notes, and then the holders will have 30 days after notice to convert their shares. Ford reserves the right to settle any conversion with shares, cash or a combination of shares and cash.
The remaining 12.6 million shares will be repurchased to offset the dilutive effect of the share-based employee incentive compensation granted in 2014. Ford had offset the effect of share-based employee incentive compensation in the year 2012 and 2013 through open market purchases of 11.7 million and 13.3 million shares respectively.
Ford will repurchase these 116 million shares periodically in the open market. The repurchase program is expected to expire in 2014. The company had 3.88 billion shares of common stock and 70.85 million shares of Ford Class B stock outstanding as of Apr 30, 2014.
This repurchase program will enhance shareholders’ returns. The company’s strong cash balance supports this share repurchase program. Ford had cash and marketable securities of $25.2 billion as of Mar 31, 2014, an improvement of $1 billion over $24.2 billion as of Mar 31, 2013. Automotive debt slightly decreased to $15.7 billion as of Mar 31, 2014 from $16 billion as of Mar 31, 2013.
In the first quarter of 2014, the company’s cash flow from operating activities increased to $2 billion from $0.7 billion a year ago. Automotive operating-related cash flows surged 71.4% to $1.2 billion from $0.7 billion a year ago.
Ford currently carries a Zacks Rank #3 (Hold). Some better-ranked automobile stocks worth considering are Volkswagen AG (VLKAY), Fox Factory Holding Corp. (FOXF), and Fuji Heavy Industries Ltd. (FUJHY). Volkswagen sports a Zacks Rank #1 (Strong Buy) while Fuji and Fox Factory carry a Zacks Rank #2 (Buy).