Ford's latest earnings are, allegedly, taking Wall Street by surprise.
Ford Motor Co continued to roll forward during the second quarter of 2010, reporting a profit of $2.6 billion, or 61 cents per share, as each of its major business operations around the world posted larger profits.
The second quarter financial report reflected the best results by Ford since the first quarter of 2004, Ford chief executive officer Alan Mulally said, adding the company should be able to go from a net debt to a net cash position by year-end.
“We delivered a very strong second quarter and first half of 2010 and are ahead of where we thought we would be despite the still-challenging business conditions,” Mulally said, adding Ford expects to continue to post strong results through the balance of the year and through 2011.
“We remain on track to deliver solid profits and positive automotive operating-related cash flow for 2010, and we expect even better financial results in 2011,” Mulally said.
It is hard to argue that Ford is on a roll, according to industry analysts. The maker has landed at or near the top in a variety of new consumer studies, including the J.D. Power Initial Quality Survey, which in June showed Ford to be the top-ranked mainstream brand for out-of-the-factory quality. The maker also dominated the recent Ideal Vehicle Awards, from AutoPacific, Inc., a measure of which products motorists are most passionate about.
“Our progress is being led by the strength of our new products and our leaner, global structure,” Mulally added. “Customers are responding to our strongest ever product lineup – a full family of vehicles with world-class quality, fuel efficiency, safety, smart design and value,” he said, during a conversation with journalists, this morning.
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The $338 million, or 15%, year-over-year improvement in second-quarter profits reflected steady gains by the company’s automotive operations, notably including overseas markets in China, India and Thailand, as well as a strong showing in the long-troubled U.S. market, Ford executives said.
The biggest improvement was back home, where Ford North America posted a second-quarter pre-tax operating profit of $1.9 billion, compared to a $900 million loss in the second quarter 2009.
Lewis Booth, Ford’s chief financial officer, said the automotive operating-related cash flow was a positive $2.6 billion during the second quarter, primarily reflecting pre-tax operating profits and favorable changes in working capital.
Ford finished the second quarter with $21.9 billion in automotive gross cash, a decrease of $3.4 billion since the first quarter, but that was the result of substantial debt reduction actions totaling $7 billion. The repayments saved Ford $470 million in interest payments, Booth said.
“Our fundamental business is strong and we continue to gain momentum around the world,” Booth said. “We’re continuing to close the gap with our Asian competitors in the U.S.”
Ford’s vehicle sales in the second quarter totaled 1.4 million units compared with 1.2 million units a year ago. Worldwide Automotive revenue in the second quarter was $28.8 billion, up from $23.6 billion a year ago.
Ford’s quarterly financial report also underscored the company’s broad strength around the world.
Ford Europe reported a pre-tax operating profit of $322 million, compared with a profit of $57 million a year ago and a profit of $107 million in the first quarter. The year-over-year increase was explained primarily by lower costs, driven in part by lower spending related to distressed suppliers and a warranty reserve adjustment not expected to reoccur, offset partially by unfavorable net pricing.
Ford Asia Pacific Africa reported a pre-tax operating profit of $113 million, compared with a loss of $27 million a year ago and a pre-tax operating profit of $23 million in the first quarter. The year-over-year improvement was explained by higher volume, reflecting primarily an improved industry, lower costs, and favorable exchange rates. Second-quarter revenue was $1.8 billion, up from $1.2 billion a year ago, Ford officials said.
Going forward, Ford expects third-quarter 2010 production to be up 126,000 units compared with year-ago levels, reflecting continued strong demand for Ford products, maintenance of competitive stock levels, and the non-recurrence of prior-year stock reductions.
Fourth-quarter production also will be affected by planned holiday shutdowns and new product changeovers for the launch of critical new vehicles such as the Focus and Explorer. Overall, Ford’s third and fourth quarter production schedule is lower than the first half but consistent with the company’s strategy to match supply with demand.
Mulally also said Ford now expects full-year 2010 U.S. total market share and its share of the U.S. retail market to continue to improve, while European market share for the full year is now expected to be about equal to the first half of 2010, but lower than 2009, reflecting the company’s decision to hold back on incentives in the region despite aggressive giveaways offered by its competitors.
However, after four years of cost reductions, Ford expects structural costs to be about $1 billion higher to support growth and key product introductions. Ford also expects full-year commodity costs to increase by about $1 billion.
Ford’s cost structure, however, continues to improve as a percentage of revenue. Capital expenditures were $1.9 billion in the first half. Ford expects full-year capital spending to be about $4.5 billion to support its product plan, as the company continues to realize efficiencies from its global product development processes.
Ford Credit also expects full-year 2010 profits to be higher than its 2009 profits as the Ford finance subsidiary expects smaller improvements in the provision for credit losses and depreciation expense for leased vehicles.