Tuesday, October 26, 2010

Ford Posts Record $1.69 Billion Third-Quarter Profit (Update1)

Ford Posts Record $1.69 Billion Third-Quarter Profit (Update1)
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By Keith Naughton

Oct. 26 (Bloomberg) -- Ford Motor Co., propelled by new models that are boosting its U.S. share, reported third-quarter net income of $1.69 billion, the highest in the automaker’s 107- year history.

The results topped the previous third-quarter record of $1.13 billion, set in 1997. Excluding some items, profit was 48 cents a share, topping the 38-cent average of 12 analysts’ estimates compiled by Bloomberg. The second-largest U.S. automaker had net income of $997 million in last year’s third quarter and an adjusted per-share profit of 26 cents.

Chief Executive Officer Alan Mulally has revived Ford by improving quality and expanding offerings of the namesake brand. Ford, the only major U.S. automaker to avoid bankruptcy, won 15.1 percent of U.S. light-vehicle sales in the quarter, up from 13 percent two years ago, as buyers pay more for new models such as the Fiesta subcompact and Super Duty pickups.

“Ford has elevated its brand,” said Jessica Caldwell, director of pricing and industry analysis for automotive researcher Edmunds.com. “They’re attracting a more discerning buyer who has more income and can afford more options.”

Ford, based in Dearborn, Michigan, fell 11 cents to $14.04 at 7:30 a.m., before the start of regular New York Stock Exchange composite trading. The shares gained 42 percent this year through yesterday.

Average Prices

Buyers of Ford cars and trucks paid an average of $30,636 per model in September, up 10 percent from five years ago, as they loaded up on options like voice-activated telephone and stereo systems, according to Santa Monica, California-based Edmunds. That’s the highest average price Edmunds has recorded for Ford since the researcher began gathering data in 2002, Caldwell said.

Ford’s third-quarter sales fell 4.3 percent to $29 billion as the company boosted North American production 16 percent to 570,000 cars and trucks. The average of eight analysts’ estimates was for revenue of $27 billion.

Ford said its automotive operations had $23.8 billion in cash on Sept. 30, up from $21.9 billion on June 30. Ford, which has been paying down its obligations this year, had automotive debt of $26.4 billion, down from $27.3 billion on June 30.

Ford said today it will pay down a revolving credit line by $2 billion and use cash to prepay the remaining $3.6 billion in debt owed to its union retirement account.

Debt Repayment

Ford said it expects to have about the same amount of cash and debt by the end of this year, 12 months ahead of schedule. Ford has paid down its obligations by $10.8 billion so far this year, including the $3.6 billion payment this week to the union retiree health-care trust. That debt reduction saves Ford about $800 million annually in interest payments, the company said.

Ford has more debt than General Motors Co. and Chrysler Group LLC because it borrowed $23 billion in late 2006 before credit markets froze. That gave the automaker a cash cushion to withstand the recession and avoid bankruptcy. It also left Ford with obligations that Mulally has said put the automaker at a competitive disadvantage.

Moody’s Investors Service raised Ford’s credit rating two levels Oct. 8, saying its operating performance “significantly exceeded” expectations.

“The company is well positioned to continue generating strong earnings and cash flow through 2011, and to further strengthen its balance sheet,” J. Bruce Clark, Moody’s senior vice president, said in the report.

Credit Rating

Ford’s credit rating remains two levels below investment grade and Moody’s said it doesn’t anticipate another upgrade until the second half of next year, after contract talks with the United Auto Workers conclude. Chief Financial Officer Lewis Booth has said returning to investment grade is “a rallying cry within the company.”

Mulally, 65, has said Ford will deliver “solid profits” this year and generate positive automotive operating cash flow. Ford may have net income of $7.64 billion this year, according to the average estimate of four analysts. The company earned $6.37 billion in the first three quarters, topping Volkswagen AG’s $5.6 billion.

Ford said today fourth-quarter production will rise to 1.35 million globally, about 89,000 more than in the third quarter.

Since coming from Boeing Co. in September 2006, Mulally has focused on the Ford brand and unloaded European luxury lines Jaguar, Land Rover and Aston Martin. Ford sold Volvo to Zhejiang Geely Holding Group Co. in August for $1.5 billion, the largest overseas acquisition by a Chinese automaker. Ford bought Volvo for $6.5 billion in 1999.

Ending Mercury

Ford also has said it will discontinue the mid-priced Mercury model line at the end of the year to focus on reviving the Lincoln luxury brand. The automaker told Lincoln dealers this month it plans to reduce metropolitan stores by 35 percent.

Last year, Mulally ended three years of losses at Ford, which earned $2.7 billion in 2009. From 2006 through 2008, Ford’s losses totaled $30.1 billion as a collapse in sport- utility vehicle sales was followed by the most severe recession since the Great Depression.

All of Ford’s business units will be profitable in 2011, Ford’s Booth told reporters today. Average prices for new models continue to climb, adding $400 million to pretax automotive profits in the quarter, he said.

“The general perception of Ford four years ago was this kind of loser company in a loser industry,” said Bernie McGinn, president of McGinn Investment Management in Alexandria, Virginia, which owns 330,000 Ford common shares. “Now people are buying Fords because it’s cool.”

To contact the reporter on this story: Keith Naughton in Southfield, Michigan, at Knaughton3@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net

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