Ford Sets Third-Quarter Record with $1.7 Billion Profit
By Michelle Krebs October 26, 2010Ford Motor Co. reported Tuesday that it had earned $1.69 billion in the third quarter, a new record for the quarter that surpassed analysts' forecasts. Ford also announced plans to further reduce its hefty debt load further.
"This was another strong quarter and we continue to gain momentum with our One Ford plan," Ford President and CEO Alan Mulally said in a statement. "Delivering world class products and aggressively restructuring our business has enabled us to profitably grow even at low industry volumes in key regions.
Looking forward, Mulally, who will hold a media and analysts conference later in the morning, said: "The key drivers for improvement in 2011 will be our growing product strength, a gradually strengthening economy and an unrelenting focus on improving the competitiveness of all our operations."
Ford's third-quarter net income of $1.69 billion is a $690 million improvement from the third quarter of 2009. It surpasses the previous third-quarter record of $1.13 billion in the third quarter of 1997."Ford has had a series of successful new products recently, including the Ford Fiesta and the Ford Fusion," said Edmunds.com Analyst Jessica Caldwell. "When an automaker consistently comes out with good products, people start to believe it really has changed and is worth a look when it's time to go car-shopping."
In addition to boosting sales with its new models, Ford has increased the profit per vehicle by lowering incentives and adding features to each sale. Edmunds.com's analysis shows buyers paid an average of $30,636 for a Ford in September, up 10 percent from five years ago. Ford's incentives were down 7.2 percent in the quarter, while its market share rose 1.3 percentage points, according to Edmunds.com's analysis.
Debt Reduction
The automaker said it plans to pay down another $2 billion on its revolving credit line and prepay in cash the remaining $3.6 billion it owes to the union's retiree health care trust known as VEBA this Friday. Ford also will exercise conversion offers on two convertible debt securities in the fourth quarter. Debt holders will be offered a cash premium to encourage them to convert the debt into Ford shares.
Ford said it now expects its automotive cash to equal its debt by year-end -- a year earlier than originally planned. That represents an improvement of $8 billion to $9 billion. Ford closed the quarter with $23.8 billion in automotive gross cash, up $1.9 billion from the second quarter. That cash combined with available credit lines puts Ford's liquidity at $29.4 billion.
"Our performance through the first nine months has clearly exceeded our initial expectations and is enabling us to make additional significant balance sheet improvements in the fourth quarter," Ford CFO Lewis Booth said in the statement issued Tuesday. "We are now in a period where we are focusing on growing the business profitably around the world following the hard work that has been done by the entire Ford team to fix the fundamentals of the business."
By the Numbers
Third-quarter revenue actually declined by $1.3 billion to $29 billion, due, in part, to the exclusion of Volvo, which was sold to Chinese automaker Geely. Excluding Volvo, revenues rose $1.7 billion compared with a year ago.
Ford earned $1.3 billion of its profits from its global automotive operations, a huge improvement from the profit of $341 million a year ago. Ford said the improved profit picture was the result of higher sales volume and a richer mix of vehicles.
Ford turned a profit in three of its four major regions around the globe; it lost money in Europe.
In North America, Ford made $1.6 billion in profits, up from $314 million a year ago; revenues rose to $16.2 billion from $13.4 billion a year ago. In addition to higher volume due to a string of successful new product launches, Ford has said it is making more money per vehicle because it is spending less in incentives and customers are spending more for added features on their vehicles.
In South America, Ford earned $241 million, down from $247 million a year ago, due to higher costs despite increased revenue. In Asia-Pacific-Africa, Ford earned $30 million, up from $22 million. Revenue also increased there. In Europe, Ford lost $196 million, compared with a profit of $131 million a year ago. The drop was due to lower volume and market share - revenue dipped to $6.2 billiom from $7.3 billion -- combined with higher costs due to product launches, engineering spending and higher commodity costs.
2010 - 2011 Outlook
Ford forecasts the industry will sell 11.6 million vehicles (light, medium and heavy combined) in 2010, in line with Edmunds.com's forecast of 11.3 million light vehicles sold for 2010. Europe will come in at 15 million, Ford forecasts.
The automaker said it is sticking with its strategy to match supply with demand. To that end, Ford will build 27,000 more vehicles in the 2010 fourth quarter than it did a year ago and up 89,000 vehicles from the third quarter, a reflection of the seasonal increase.
Ford is signaling the fourth quarter will see "solid profits" and positive automotive cash flow.
The automaker said it will "deliver solid profits in 2010 with positive automotive operating-related cash flow, and continued improvement in 2011." In 2011, Ford predicts each of its automotive operations will be profitable.
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