Ford CEO Mulally with the new Focus ST.
Ford Motor Co. earnings dipped slightly during the third quarter, triggering a modest sell-off by investors despite company assurances that it’s only a temporary setback – CEO Alan Mulally insisting insisting Ford’s “core…remains strong.”
Ford posted earnings of $1.6 billion, or 41 cents per share, for the July – September quarter, a $38 million, or 2 cents per share – dip from year-earlier levels. The decrease reflected higher raw material prices, the costs of new product launches and a dip in profit margins on new vehicles.
Even so, chief executive Alan Mulally said Ford continued to strengthen its balance sheet, invest for future growth, as well as take actions to improve its competitiveness
“We delivered solid results for the third quarter despite an uncertain business environment,” Mulally said, arguing that, “The core of our business remains strong.”
The suburban Detroit maker, he contended, is just beginning to realize the benefits of his One Ford Plan, which emphasizes global, rather than regional product development. Efficiency gains in the “One-Ford” product development plans are helping Ford hold down capital expenditures without reducing the scope of its product plans, according to Mulally.
The slight earnings dip comes as Ford reports a number of other gains, including an increase in its corporate debt rating – to one step below investment grade – and a new union contract expected to ultimately reduce labor costs over its four-year term.
Lewis Booth, Ford’s chief financial officer, confirmed a recent report on TheDetroit Bureau.com that Ford is considering plans for restoring its quarterly dividend. However, the maker hasn’t made any kind of decision yet.
“We don’t have any timetable,” cautioned Booth, adding that, “Obviously, we would like to pay it sooner rather than later.”
Ford was being cautious about any commitment because they want to make sure the dividend policy is sustainable, Booth explained during a conference call with reporters and analysts.
Ford’s third-quarter revenue was $33.1 billion, an increase of $4.1 billion from the same period in 2010. Ford generated positive automotive operating-related cashflow of $400 million in the third quarter. Despite the increased revenue and pre-tax profits, operating margins dropped from 6.2% to 4.8%, according to the information presented by Ford. Officials blamed the decline on rising incentive levels created by competition, among other factors.
Third-quarter 2011 pre-tax operating profit was $1.9 billion, or 46 cents per share, a decrease of $111 million, or 2 cents per share, from the third-quarter 2010 as improvements in results from the company’s automotive business were were offset by reductions in income from Financial Services.
For the first nine months, Ford earned a pre-tax operating profit of $7.7 billion, net income of $6.6 billion and reported automotive operating-related cash flow of $4.9 billion. Ford continued to grow volume and revenue during the period.
Mulally said Ford’s third-quarter net income was affected by unfavorable special items of $98 million. Those included personnel reduction actions, the elimination of the Mercury brand and other dealer-related actions in North America.
Third-quarter Ford Credit pre-tax operating profit was $581 million, a decrease of $185 million from third-quarter 2010, consistent with previous guidance.
The third-quarter total automotive pre-tax profit was $1.3 billion, an increase of $45 million from the same period a year ago. North America and South America reported pre-tax profits for the third quarter, however, Ford’s European and Asian operations posted a loss for the period.
Ford also continued to strengthen its balance sheet, with a net reduction in automotive debt of $1.3 billion in the third quarter. This included payment of the remaining $1.8 billion balance of secured Term Loan debt, which was offset partially by an increase in low-cost loans to support advanced technology.
Ford ended the third quarter with $20.8 billion of cash reserves, a decrease of $1.2 billion compared to June 30, 2011. Automotive gross cash exceeded debt by $8.1 billion, an improvement of $10.7 billion from a year ago. Ford’s automotive liquidity totaled $31 billion.
“We remain well on track to deliver improved full year pre-tax operating profit and Automotive operating-related cash flow, consistent with our guidance,” said Booth. “Our liquidity remains strong, and we will continue to take actions when appropriate to strengthen our balance sheet.”
Within automotive results, the pre-tax operating profit was reduced by about $350 million for unrealized mark-to-market adjustments on commodity hedges for future periods, which were used to offset rising prices for critical materials.
The adjustments occurred because of the significant decline in commodity prices near the end of September. This is a non-cash charge that will either reverse should commodity prices increase or be offset by the benefit of lower commodity prices in the future.