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Ford swings to profit in first quarter
Ford may have just caught its first glimmer of the light at the end of the tunnel.
The long-troubled Detroit automaker on Thursday surprised Wall Street with a first-quarter profit of $100 million, a turnabout from a loss of $282 million a year earlier.
The earnings of 5 cents a share were particularly stunning because analysts had expected the company to lose as much as $1.1 billion on the quarter. Ford stock rose on the news by nearly 12% to $8.40.
"The results of this quarter are encouraging," Chief Executive Alan Mulally said. "Going forward, we remain committed to our key business objectives, including our goal of reaching North America and overall automotive profitability in 2009."
Revenue was $43.5 billion, up from $43 billion in the year-earlier period. Ford showed profit of $739 million in Europe and $257 million in South America, but its earnings were dragged down by a $45-million loss in North America, its largest market.
The Dearborn, Mich.-based company's last profitable year was 2005, when it earned $1.4 billion. Last year, it posted a $2.7-billion loss.
Analysts contend that the condition of the U.S. economy will determine whether the company achieves its goals.
"This will continue to be a very challenging market for them," said Mark Oline, an analyst at Fitch Ratings Ltd. He said Ford's declining sales in the U.S. -- they're down 9% in the first three months of the year compared with 2007 -- must be halted for the company to get back in the black.
Most of Ford's efforts to right its financial ship have come from cost-cutting. For the quarter, the carmaker reduced its North American costs by $1.2 billion, and $1.7 billion worldwide.
Since the end of 2005, Ford has shrunk its workforce in North America by more than 40,000 and said Thursday that it planned to cut an additional 4,200 hourly workers worldwide. Last year, Ford signed a deal with the United Auto Workers that would allow it to significantly reduce labor and retirement benefit expenditures. Ford has also scaled back production.
Observers say the company's chief hurdle now is sales. In the fall, Ford hired a new marketing chief, former Toyota executive Jim Farley. It has also announced plans to create a "global platform" that would allow it to deliver the same smaller, fuel-efficient cars in multiple markets, beginning with the Fiesta, which will reach the U.S. in 2010 although it will be on sale in Europe by the end of this year. In the meantime, Ford is ramping up production of its U.S.-specific Focus, which has been a strong seller of late.
But Ford's U.S. lineup is still heavily skewed toward trucks and sport utility vehicles. This fall, Ford plans to begin selling its redesigned F-150 pickups, the bestselling vehicle in the U.S., and among its most profitable. Yet sales in the light truck category are down 12% through March, and F-series trucks are down 14%.
"Gasoline is not going down to $1.50, which means people will continue to look for fuel-efficient vehicles that are less profitable" for Ford, said Sean Egan, managing director of Egan-Jones Ratings Co.
Unless the slumping housing market turns around in short order, analysts said, the truck market will only get worse.
For Ford, the quarterly profit was the second recorded under Mulally, who was hired from Boeing Co. in 2006. The previous positive result came in the second quarter of 2007, when Ford earned $750 million.
The first three months of the year were marked by Ford's sale of its Jaguar and Land Rover units to Indian automaker Tata Motors for $2.3 billion -- significantly less than what Ford paid for them. But that cash will not be added to Ford's books until the second quarter.