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Ford beats expectations with a $2.3-billion profit in 2nd quarter

Though the automaker still lost $424 million in automotive operations, the news is a big boost for the company, which had been expected to lose about 52 cents a share.

July 24, 2009|Ken Bensinger

Ford Motor Co. has dodged bankruptcy and found the black.

While rivals General Motors Corp. and Chrysler Group filed for Chapter 11 bankruptcy protection in the second quarter, Ford said Thursday that it earned $2.3 billion in the period thanks to aggressive cost cutting and debt reduction.

The results exceeded estimates. And although the company still lost $424 million in its automotive operations, that, too, was a vast improvement from the $1 billion it lost on its core business a year earlier, underscoring the story that Ford's turnaround plans are succeeding.

"Given the current automotive industry environment, we consider the quarterly performance strong," said Efraim Levy, equity analyst at Standard & Poor's.

The results drove Ford shares up 60 cents, or 9.4%, to $6.98, the company's highest close since May 2008.

The automaker's second-quarter profit of 69 cents a share, compared with a record loss a year earlier of $8.7 billion, or $3.89 a share, comes largely thanks to one-time gains related to restructuring of corporate debt. Its revenue fell to $27.2 billion, compared with $38.6 billion a year earlier.

Ford had been expected to lose about 52 cents a share, based on Wall Street analysts' expectations.

Still, the positive bottom line is clearly a boost to the company, which remains the only U.S. automaker able to resist taking emergency funding from the federal government and avoid filing for bankruptcy.

Chief Executive Alan Mulally said the company remained "on track to meet" its goal of reaching the break-even point, or even an operating profit, by 2011 as it rolls out new products in a bid to pull market share from battered competitors such as GM and Chrysler, as well as Asian rivals.

"Clearly the road ahead remains challenging," said Mulally, citing the continuing problems in the world economy. "Despite the challenges, Ford's underlying business continues to get stronger."

Much of the company's improvement comes from aggressive cost cutting, including eliminating 1,000 jobs in the second quarter, combined with debt reduction and fundraising.

Ford brought in $1.6 billion in an equity offering this spring and restructured $10.1 billion in debt, thereby cutting its annual interest expenses by half a billion dollars.

At the same time, Ford has negotiated significant cost concessions with the United Auto Workers union, including reducing its cash obligations to a fund for retiree healthcare costs.

For the quarter, Ford lowered its quarterly cash burn to $1 billion, a far slower rate than in recent periods and a sign that the company's turnaround is progressing.

But with the company's cash reserves down to $21 billion, Wall Street continues to believe that Ford needs more cash, and rumors of future potential stock offerings persist.

"In a worst-case scenario, by the end of this year, Ford's cash position could fall close to the maintenance level and it could need a line of credit from the government, not to stay out of bankruptcy, but just to ensure that it has sufficient liquidity going into 2010," said Shelly Lombard, an analyst at debt research firm Gimme Credit.

Mulally declined to say what specific plans the automaker had to increase its cash position. Separately, he said he expected the pace of cost reductions to slow in the remainder of 2009, signaling that future results could be less positive.

For the quarter, Ford lost $851 million in North America, compared with $1.3 billion a year earlier, as the company gained crucial U.S. market share. Ford's profit in Europe fell to $138 million, compared with $582 million a year earlier. In South America, Ford's operating profit was $86 million, down from $388 million in the second quarter of 2008.

Following the pillars of a plan created by Mulally, Ford has gone on the offensive during the auto industry's disastrous downturn, apparently seeing the slow sales and tight credit markets as an opportunity for future growth.

Numerous marketing studies have shown that consumers now see Ford in a far more positive light than its domestic competitors because it was able to avoid government assistance.

This year, Ford has launched or will launch several new vehicles, including the redesigned Taurus, which has already gained great acclaim.

Ford said it hoped to be able to raise prices and reduce sales incentives on its newer offerings, increasing its competitiveness with Japanese automakers such as Toyota Motor Corp. and Honda Motor Co.

In addition, the company has announced plans to produce a battery electric version of its Ford Focus, which will be built in Michigan. Last month, Ford was named a recipient of $5.9 billion in loans from the Energy Department that will help fund production of the Focus and other vehicles.

"We plan to be in every product segment with a world-class vehicle," Mulally said.


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