Ford Reports Profit Amid Restructuring
Emerging from its disastrous financial performance last year, Ford Motor Co. said Wednesday that it turned a profit in the second quarter and probably would earn “a modest profit” for the year.
A drastic restructuring program announced six months ago, after Ford lost $5.45 billion last year, is starting to take effect, although more belt tightening is needed, said Chief Financial Officer Allan Gilmour.
“The key to our success is to execute successfully our revitalization plan in North America and Europe,” Gilmour said in a conference call. “But we are still far from our objectives.”
The world’s second-largest auto maker recorded second-quarter operating profit of $610 million, or 31 cents a share, contrasted with a $551-million operating loss, or 30 cents a share, in the same quarter last year.
Ford’s net profit was $570 million, or 29 cents a share. In the year-earlier quarter, an extraordinary $3-billion pretax charge to cover the replacement of millions of potentially defective Firestone tires took Ford’s net earnings to a $752-billion loss, or 42 cents a share.
The wrenching turnaround launched in January includes eliminating 10% of its workers and closing three North American factories. Gilmour said that the company was not reaching targets for eliminating vehicle costs and that Ford would decide on further streamlining that could include additional job cuts.
“Ford is huffing and puffing to meet its cost-reduction targets,” John Casesa, industry analyst for Merrill Lynch, said Wednesday in an investment note to clients. “Ford is making slow progress, but progress nonetheless, in difficult conditions.”
Steven Girsky, Morgan Stanley’s chief automotive analyst in New York, said he is concerned “that profitability remains weak despite strong industry demand. The competitive environment appears to be getting more difficult, and the company’s cost-cutting efforts appear inconsistent.”
Ford’s previous chief executive, Jacques Nasser, was ousted in October in part because of the Firestone debacle but also because an acquisition binge got Ford into non-core businesses such as auto repair and Internet retail. Gilmour said Ford has raised $400 million from the sale of non-core assets since the beginning of the year.
Gilmour pointed to a number of positive gains for Ford in the last three months, including a 12% improvement in a closely watched quality study by J.D. Powers & Associates; a $3.4-billion increase in cash from the last quarter to $24.9 billion; gains in full-size sport utility vehicle sales with the arrival of the redesigned Ford Expedition and its sister luxury vehicle, the Lincoln Navigator; and considerably stronger sales at Ford-owned Jaguar and Land Rover.
Gilmour said Ford probably would post a loss for the third quarter, traditionally the weakest of the year because of an annual manufacturing shutdown in July and changeovers in some factories to production of new models.
“We continue to expect a modest profit for the full year,” said Gilmour, a Ford veteran who was reappointed CFO two months ago after being called back from retirement. “It will be small relative to the size of Ford Motor Co.”
Ford shares rose 2 cents to $12.52 on the New York Stock Exchange.
Ford and General Motors Corp. shares have fallen sharply in recent days on concerns that weak stock markets would drive up pension costs.
Both keep large portions of their multibillion-dollar pension funds in stocks, and both assume high rates of return to fund future obligations. GM had to inject $3.2 billion into its pension fund in the second quarter, which was under-funded last year by $9 billion.
Gilmour said Ford’s U.S. pension fund assets declined by 6.7% through June 30, resulting in under-funding of $3.2 billion. Despite the decline, he said Ford saw no changes to its 2002 pension expenses and no need to make a cash contribution this year.
