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Ford posts $1.7-billion third-quarter profit

The 69% earnings increase underscores the success of the auto industry's restructuring during the recession and proves that Ford can be profitable even with low sales volumes.

October 27, 2010|By Jerry Hirsch, Los Angeles Times

Ford Motor Co., demonstrating the growing strength of the U.S. auto industry, earned $1.7 billion in the third quarter, a 69% jump over the same period last year and surpassing a record set in 1997.

Analysts said Ford's financial health was further evidence that the industry's restructuring during the recession was paying off even though auto sales remain near historically low levels. The nation's other major automakers, General Motors Co. and Chrysler Group, are expected to report improving finances next month.

"It does bode well for GM, Chrysler and the auto suppliers that Ford can be as profitable as it is on very low volumes," said Kirk Ludtke, an analyst at CRT Capital Group in Stamford, Conn. "Every quarter that passes and Ford's profitability is sustained is affirmation that the industry has made some fundamental improvements. This is not an aberration."

While the domestic automakers can now make money on much smaller sales, Ford is furthest along with both cost reduction efforts and having the right mix of vehicles for the current market, said Shelly Lombard of Gimme Credit, a corporate credit research firm.

"You can't say that GM and Chrysler are out of the woods, but things are getting better," Lombard said. "They won't do quite as well, but they will be a heck of a lot better than they were a year ago."

Ford, which avoided bankruptcy during the recession, benefitted from both cost-cutting and top-line performance, gaining U.S. market share and selling vehicles for higher prices.

"Overall, we are doing better than we expected through the first nine months of the year," said Alan Mulally, Ford's chief executive, "and we expect to deliver solid profits in the fourth quarter and for the full year."

Much of the automaker's success is coming from a string of successful new products, such as the Fusion sedan and the Edge SUV. Truck sales, especially government and business fleet sales of the F-150 pickup, also added to the quarterly profit.

"This latest Ford story highlights a simple truth in the automotive business: Appealing product can sell in any market on its own merit, without major incentives," said James Bell, an analyst with Kelley Blue Book, the auto pricing information company.

Ford has also reduced its level of sales-incentive spending at the same time buyers are adding options to their cars and spending more, according to Edmunds.com, the auto information company. Edmunds.com estimated that buyers paid an average of $30,636 for a Ford in September, slightly higher than a year ago and up 10% from five years ago.

"For a long time, they weren't really in the car market very strongly, depending mostly on trucks and SUVs. Now they have good cars, and the car market is where the action has been in recent years," said Jessica Caldwell, an analyst with Edmunds.com.

Ford's profit equaled 43 cents a share and compared with earnings of $1 billion, or 29 cents a share, in the same period in 2009. It was the automaker's sixth consecutive profitable quarter. Revenue fell to $29 billion from $30.3 billion a year earlier, before the company sold off Volvo, the Swedish automaker, to focus on its core Ford and Lincoln brands. Year to date, the company has earned $6.4 billion.

Ford shares closed Tuesday up 21 cents, or 1.5%, at $14.36.

On Friday, Ford plans to use some of the cash it is generating to pay off the remaining $3.6 billion it owes to the United Auto Workers union retiree healthcare trust, which will save it about $330 million in annual interest expenses. The automaker borrowed heavily to stay afloat during the recession and is working to pay back those loans.

The payment will reduce the company's total debt to $22.8 billion, a net reduction of $10.8 billion from the end of 2009. Ford said it expected its cash holdings to be equal to its total debt by the year's end, earlier than it previously anticipated. Ford also plans a stock offering that would convert $3.5 billion in debt to common stock during the fourth quarter.

"We are clearly ahead of where we thought we would be on improving our balance sheet and repaying our loans," Mulally said. "This allows us to reduce our annualized interest payments by over $800 million."

Ford's American operations had an operating profit of $1.6 billion, compared with $300 million in the same period last year. The company was profitable in South America and in Asia, driven by gains in China and India, but lost money in Europe. The company said it expected its European operations to become profitable in the fourth quarter.

Ford sales have risen 21% to 1.4 million vehicles through the first nine months. That's more than double the overall industry gain. Its share of the U.S. market has grown to 16.7% from 15.2% — the largest jump of any automaker this year, according to Autodata Corp.

There are some signs of a more robust rebound in the U.S. auto market, which was up about 10% through the first nine months.

Mark Fields, Ford's president of the Americas, said Monday that U.S. auto sales hit an annualized pace of about 12 million vehicles in October, its best rate so far this year. Automakers will report their October sales results next week.

jerry.hirsch@latimes.com

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