“They did it by themselves and didn’t take government money. That gives people a good gut feeling and they’re being rewarded for that.”
Nov. 2 -- Ford Motor Co., the only major U.S. automaker to avoid bankruptcy, posted third-quarter net income of $997 million and its first operating profit since early 2008 on smaller discounts and higher sales.
On an adjusted basis, Ford reported a quarterly pretax profit of $1.1 billion, or 26 cents a share, compared with a year-earlier loss of $3 billion, or $1.32. Ford beat the 20 cents a share adjusted loss estimated by an average of 11 analysts surveyed by Bloomberg.
Chief Executive Officer Alan Mulally, who kept Ford out of Chapter 11 as General Motors Co. and Chrysler Group LLC reorganized, increased market share and collected more from each sale. The Dearborn, Michigan-based automaker posted its first consecutive quarterly net profit under Mulally today and said it expects to be “solidly profitable” in 2011.
“Ford is a company that’s well into a turnaround,” said Bernie McGinn, president of McGinn Investment Management of Alexandria, Virginia, which owns about 320,000 Ford shares. “They did it by themselves and didn’t take government money. That gives people a good gut feeling and they’re being rewarded for that.”
Ford improved net pricing, transaction amounts after discounts, on its vehicles by $1.9 billion in the third quarter as it cut incentives and sold a mix of cars and trucks with more costly options, Booth said on a conference call.
In North America, Ford’s net pricing improved by $1.4 billion in the quarter, about a $2,700 price gain per vehicle, led by models such as the Ford Taurus sedan and F-150 pickup.
The automaker’s U.S. market share increased to 15.8 percent for the first nine months, compared with 14.8 percent from a year earlier, according to researcher Autodata Corp. of Woodcliff Lake, New Jersey.
Ford gained 61 cents, or 8.7 percent, to $7.61 at 10:53 a.m. in New York Stock Exchange composite trading. The shares had declined 2.9 percent since the end of September after more than tripling this year.
The company reported a quarterly net profit of 29 cents a share, compared with a net loss of $161 million, or 7 cents, a year earlier. Ford had positive automotive cash flow of $1.3 billion compared with cash consumption of $1 billion in the second quarter. In the year-earlier quarter, Ford used $7.7 billion.
No 2010 Guidance
The automaker will project 2010 results when it releases full-year 2009 earnings, the company said in a statement. The automaker’s earlier forecast was for at least a break-even 2011 from operations.
“Ford maintains that it will be profitable in 2011, but it did not pull forward this forecast to 2010,” said Himanshu Patel, a New York-based equity analyst with JPMorgan Chase & Co. He described the lack of guidance for next year as “somewhat surprising given the profitable quarter just reported.” He rates Ford shares as “neutral.”
Mulally said he is taking a “cautiously optimistic point of view” on 2010 and was not ready to project a profit because of uncertainties about how the global economy will recover.
“We want to see how things develop,” Mulally said. “The near-term growth outlook remains rather uncertain.”
The automaker plans to update its projections when it reports fourth-quarter financial results early next year.
“We now expect to return to a strong profit in 2011 and positive cash flow,” Chief Financial Officer Lewis Booth told reporters. “There are still some headwinds, particularly economic headwinds. What happens in the balance of the year will be a good economic indicator.”
Ford issued $565 million in “quiet equity” in the third quarter, completing a $1 billion stock issue it began in August 2008, Booth said. That equity was used to improve Ford’s balance sheet, he said. Ford expects to have positive cash flow in the fourth quarter, he said.
“We still have balance-sheet issues to work on,” Booth said. “We continue to manage the business very strongly around cash.”
Fitch Ratings raised its outlook on Ford to positive from stable today while affirming an issuer default rating of CCC.
Ford’s 7.45 percent debt due in 2031 returned 3.16 percent in October, pushing the yield as low as 4.79 percentage points relative to Treasuries, the narrowest since October 2007, according to Trace, the bond-pricing system of the Financial Industry Regulatory Authority.
The spread implies a rating of about Ba1 at Moody’s Investors Service, seven levels higher than Ford’s senior unsecured ranking of Caa2, according to Merrill Lynch & Co. index data.
Cash on Hand
Ford finished the third quarter with $23.8 billion in automotive cash, up from $21 billion at the end of the second quarter.
Automotive revenue rose $100 million from a year earlier, while third-quarter sales fell 2.5 percent to $30.9 billion as Ford boosted North American production by 18 percent during the period. The average estimate for total revenue was for $28.5 billion, according to 8 analysts surveyed by Bloomberg.
Ford will end the year with $18.2 billion in automotive cash, said Barclays Capital auto analyst Brian Johnson, who upgraded the shares Oct. 20 to “equal weight” from “underweight.”
“With improving performance, we continue to expect Ford to meet its minimum cash need through 2011,” wrote Johnson, who is based in Chicago.
Ford Credit Profits
The automaker’s Ford Credit unit reported net income of $427 million in the third quarter, up from $95 million a year earlier. It will be profitable in the fourth quarter and next year, Booth said.
Headwinds buffeting Ford include a debt load larger than that of restructured rivals and the rejection, according to people familiar with the matter, of cost-cutting contract concessions by United Auto Workers union members. While Detroit- based GM’s liabilities will be $22.3 billion in 2011, Ford’s total will be $38.1 billion, Johnson estimated.
Ford reported its fourth quarterly net income since Mulally became CEO in 2006, including $2.26 billion in the second quarter after an accounting gain. He hasn’t presided over an annual profit at Ford, which has posted three straight full-year losses totaling $30 billion.
While the U.S. government’s so-called cash for clunkers incentive program helped boost Ford’s performance in the quarter, it wasn’t the primary driver of profitability, Booth said. Ford’s North American auto operations had a pretax profit of $357 million, its first positive result since the first quarter of 2005, the automaker said.
North American revenue rose to $13.7 billion from $10.8 billion in the year-earlier quarter.
Ford expects the U.S. market to end the year with 10.4 million light-vehicle sales, down from 13.2 million last year. Ford projects industrywide light-vehicle sales to grow to 12.3 million next year and 14.3 million in 2011.
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