Ford makes a U-turn back to profitability
Is Ford finally shifting out of reverse?
The nation’s No. 2 automaker Thursday reported $750 million in earnings for the second quarter. It was Ford Motor Co.’s first quarterly profit in almost two years and defied Wall Street’s expectations of another steep loss.
Cost cutting, increased sales of higher-profit vehicles and strong results in overseas markets contributed to the surprise shift, although Ford also reported improvement in its core North American operations.
“It was a blowout quarter,” said David Healy, an analyst with Burnham Investment Research. “It’s an indication that the cost-cutting program is making progress more rapidly than expected.”
The results broke a string of seven straight quarterly losses and followed a first quarter that saw the Dearborn, Mich.-based company post a much smaller loss than analysts were forecasting.
Executives cautioned that it was too early to claim success.
“When you look at our second-quarter performance, there’s no doubt that we’re making progress, but we still have a long way to go,” said Chief Executive Alan Mulally, the former Boeing Co. executive who was hired by Ford last fall to accelerate its turnaround effort.
Mulally said the second half of the year would be difficult. Although Ford said overall 2007 results would be better than previously forecast, Mulally said he was sticking to his prediction that the company wouldn’t return to full-year profitability until 2009.
Headwinds include the nation’s weak housing market, which is hurting pickup truck sales, and higher commodity costs. Construction workers are a prime audience for Ford’s F-150 pickups, and high gasoline prices continue to restrain sales of pickups and large sport utility vehicles -- once the mainstays of Ford’s bottom line.
The company is also facing a general slowing of the U.S. auto market, Healey noted. Sales this year are running at an annualized pace of around 16.7 million vehicles, about half a million below the “normal” rate.
Given those factors, analysts were reluctant to declare that Ford had turned the corner.
“Ford has bought itself time to restructure,” analyst Shelly Lombard of the research firm Gimme Credit wrote in a note to clients. “Now it needs to execute -- which isn’t easy in what is a highly competitive market.”
Ford said its U.S. market share rose to 15.6% in the period, up from 15.1% in the first quarter but down from 16.7% a year earlier. Ford’s share had been falling steadily as it moved away from low-profit sales to rental and corporate fleets.
Mulally said sales of the Ford Edge, a car-based SUV or crossover, introduced last fall, had been particularly strong.
Bert Boeckmann, owner of Galpin Ford in North Hills, said he was encouraged by the prospects for Ford’s upcoming product line.
“They’re finally doing the things that I’ve been talking to them about,” Boeckmann said. “Taking chances on product, giving people something that excites them, not just a makeover of what you’ve already had.”
Mulally said Ford was talking to parties interested in buying its Jaguar and Land Rover brands as it continues to dismantle its Premier Auto Group, which has its North American headquarters in Irvine. Aston Martin was sold this year. The fate of the group’s other nameplate, Swedish carmaker Volvo, is under review and will be decided by the end of this year, Mulally said.
Overall, Ford’s automotive operations earned $378 million during the quarter, compared with a loss of $716 million a year earlier. The core North American operations lost $279 million, well below the year-ago loss of $789 million.
The company said it cut $600 million in costs during the quarter. It plans to cut as many as 45,000 jobs and close 16 plants as part of its turnaround effort.
Its second-quarter net profit of 31 cents a share compares with a net loss of 17 cents, or $317 million, in the second quarter of 2006.
Excluding one-time items, Ford earned $258 million, or 13 cents a share. On that basis, Wall Street was expecting the automaker to report a loss of 35 cents a share, according to Thomson Financial.
Revenue rose 5.5% to $44.2 billion.
The stock gained 12 cents to $8.09 on Thursday when the overall market was down sharply. Ford has just embarked on talks with the United Auto Workers on a new four-year contract, and the company is expected to seek significant concessions from the union.
Asked whether the upbeat results are coming at a time when they could affect the talks, Mulally said: “I think it’s never a bad time to have a good quarter.”
