Ford Posts Record U.S. Corporate Profit
Outstripping forecasts and overcoming a difficult auto market, Ford Motor Co. reported the highest quarterly profit in U.S. corporate history Wednesday, while rival General Motors Corp. also posted strong results.
The two auto giants benefited from continuing global cost-cutting efforts and brisk sales of high-profit pickup trucks, minivans and sport-utility vehicles--typified by the hot-selling, oversized Ford Expedition, which generates $10,000 per vehicle in pretax profit.
Ford earnings jumped 33% to $2.53 billion, or $2.06 a share, compared with a year-ago profit of $1.90 billion, or $1.56 a share. For the three months, GM earned $2.10 billion, or $2.68 a share, compared with a year-ago profit of $1.89 billion, or $2.63 a share.
The profit by Dearborn, Mich.-based Ford surpassed the previous record quarterly earnings of $2.49 billion reported by Exxon in the fourth quarter of 1996.
GM’s profit might have exceeded Ford’s except for costly strikes at two assembly plants, which lopped nearly half a billion dollars off its bottom line.
(Late Wednesday, GM and the United Auto Workers reached a tentative agreement on a new contract to end one strike that has idled a pickup truck assembly plant for three months.)
Details of the agreement were not immediately released.
The buoyant financial results were achieved despite a weak European market and softer U.S. auto sales, which have forced U.S. firms to offer consumers expensive sales incentives to spur the market.
Ford said it reduced operating costs by $1 billion in the second quarter through lower material, design and engineering costs, the elimination of several money-losing car programs and the streamlining of plant operations.
“Cost savings will be $2 billion for 1997. That’s more than double what we expected,” said John Devine, Ford’s chief financial officer.
Detroit-based GM also continued to benefit from restructuring operations, particularly in North America. Executives, however, would not say how much it reduced costs in the quarter.
John F. Smith Jr., GM’s chairman and chief executive, said that despite paying average incentives of $1,060 per vehicle and taking a $490-million hit because of strikes, the company was still able to reap a substantial profit. GM has produced 96,000 fewer vehicles because of the strikes.
He said that without the strikes, GM’s earnings in North America “would have been [the company’s] best performance for any quarter in more than 10 years.” However, GM also reported one-time gains totaling $421 million related to its Hughes Electronics unit and rental car operations.
GM and Ford outshone Highland Park, Mich.-based Chrysler Corp., which saw its profit fall 53% to $483 million because of higher incentives and a 29-day engine plant strike. Together, the Big Three earned $4.59 billion in the second quarter, down from $4.84 billion a year ago.
“They are doing well for this late in the cycle,” said Maryann Keller, analyst with Furman Selz, a New York brokerage. “They have done a good job of cost-cutting.”
Keller was referring to the cyclical nature of the auto industry, and there is growing concern among investors that the good times may soon come to an end. Several analysts downgraded recommendations on Ford shares Wednesday, saying profit growth will slow. Wall Street responded by driving Ford stock down $1.50 to close at $40.63. Meanwhile, GM stock rose 13 cents to close at $54.38, and Chrysler fell 81 cents to close at $34.81. All trade on the New York Stock Exchange.
But the companies would seem to be ready for anything. GM has nearly $15 billion in cash and securities on hand, and Ford has $18 billion. They have launched stock-buyback programs and, in some cases, raised their dividends.
MORE EARNINGS: D2
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Top Earners
Ford Motor Co.’s report of the highest quarterly profit ever by a U.S. corporation is the latest in a string of record earnings posted by U.S. firms. Top-earning companies in the most recently reported quarter:
*--*
Earnings Company (billions) 1 Ford Motor $2.5 2 Exxon 2.2 3 General Motors 2.1 4 Philip Morris 1.8 5 General Electric 1.7 6 Intel 1.6 7 IBM 1.2 8 AT&T; 1.1 9 Microsoft 1.0 10 Chrysler 0.5
*--*
Sources: Market Guide as of July 8, company reports
