Ford Posts $2.6 Billion Second-Quarter Profit on Pricier Cars
Alan Mulally, chief executive officer of Ford Motor Co. Photographer: Bradley C. Bower/Bloomberg
July 23 (Bloomberg) -- Alan Mulally, chief executive officer of Ford Motor Co., talks with Bloomberg's Mark Crumpton and Julie Hyman about the outlook for the automaker. Ford posted a second-quarter net income of $2.6 billion, completing its most profitable first half in more than a decade. Mulally says 2010 will be a "terrific year" and that 2011 will even better. (Source: Bloomberg)
Ford Motor Co. reported second- quarter net income of $2.6 billion, completing its most profitable first half in more than a decade, as car buyers pay more for its new models.
Ford earned $4.7 billion in the year’s first six months, its largest first-half profit since 1998, and posted its fifth straight profitable quarter. Excluding some items, profit was 68 cents a share, topping the 41-cent average estimate of 12 analysts compiled by Bloomberg. The second-largest U.S. automaker earned $2.26 billion a year earlier, helped by an accounting gain.
Chief Executive Officer Alan Mulally overhauled Ford’s lineup, redesigning cars such as the Taurus and Fusion, and adding extras like heated leather seats and voice-activated electronics. He also boosted quality, winning Ford price gains of $1.1 billion on cars and trucks in the quarter and helping all of its auto units worldwide to become profitable.
“Ford’s on an amazing roll right now,” said Rebecca Lindland, an analyst at IHS Automotive in Lexington, Massachusetts. “They just have a ton of momentum.”
Second-quarter sales rose 15 percent to $31.3 billion from $27.2 billion a year ago. Excluding Volvo, which the company is selling, the year-ago revenue was $26.8 billion, Dearborn, Michigan-based Ford said today in a statement. The average of eight analysts’ estimates was for revenue of $29.4 billion.
The shares rose 63 cents, or 5.2 percent, to $12.72 at 4:02 p.m. in New York Stock Exchange composite trading, its highest close since May 4. The stock has gained 27 percent this year.
Automotive Cash
Ford’s automotive operations had $21.9 billion in cash on June 30, down from $25.3 billion on March 31. Ford paid down automotive debt by $7 billion in the second quarter, lowering it to $27.3 billion from $34.3 billion at the start of the quarter.
Ford said today it will have a positive automotive net cash position by the end of 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 in the statement.
Ford said it won’t earn as much in the second half because of high costs “to support growth and key product introductions, as well as higher commodity costs and smaller reductions in reserves at Ford Credit.” Ford will begin selling the redesigned Explorer sport-utility vehicle and Focus small car in the second half. Ford said it expects the costs associated with new models will rise $1 billion this year in addition to $1 billion in extra costs for raw materials such as steel.
Auto-Sales Forecast
U.S. auto sales in 2010 will be about 11.5 million to 12 million vehicles, Ford said. That’s down from the company’s previous forecast 11.5 million to 12.5 million. Last year’s 10.4 million vehicles was the lowest annual total since 1982.
“Consumers are worried about their personal balance sheet,” Lewis Booth, Ford’s chief financial officer, said in an interview. “While they’re paying back their debts, they’re reluctant to take on more debt. And a car is a big purchase.”
Profit will increase in the company’s credit unit this year, Booth told reporters today. The company previously said the unit’s profit would be about the same as last year.
“We think 2010 is going to be a really great year,” Booth said. “And we expect next year, based on our planning assumptions, to be even better.”
Ford’s U.S. light-vehicle sales rose 20 percent in the quarter, exceeding the industrywide gain of 18 percent. The pace of U.S. auto sales slowed to an annual rate of 11.1 million vehicles in June from 11.6 million in May as consumers stayed out of showrooms.
Ford Debt
Ford has more debt than its U.S. rivals because it borrowed $23 billion in late 2006, before credit markets froze. The cash cushion helped the company withstand the recession and avoid the bankruptcies that befell General Motors Corp. and Chrysler LLC. The borrowing left Ford with obligations that Mulally says now put it at a competitive disadvantage.
“They were fortunate enough to mortgage the entire company to get that loan,” said Efraim Levy, automotive equity analyst at Standard & Poor’s. “They were lucky that they were so desperate.”
Mulally, 64, has said Ford will deliver “solid profits” this year and generate positive automotive operating cash flow. Ford may have 2010 net income of $5.49 billion, the average estimate of four analysts.
Mulally is boosting profit by reducing discounts while selling new models such as the Taurus and Fiesta subcompact with more options that fetch higher prices.
Buyers paid an average of $30,309 for Ford cars and trucks in June as they splurged on extras like voice-activated phones and stereo systems, according to Edmunds. Ford held 17.5 percent of its U.S. market in the first half, up from 16.1 percent last year. U.S. sales of its profitable F-Series pickup line rose 34 percent in the first half.
“Their cars are a touch better than their competitors,” said Jessica Caldwell, director of pricing and industry analysis for Edmunds. “And when you offer something that is a step ahead of the competition, people expect to pay a higher price.”
To contact the reporter on this story: Keith Naughton in Southfield, Michigan, at Knaughton3@bloomberg.net
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