With profit, Ford again exceeds expectations

[TonyV]

Last Updated: January 29. 2010 1:00AM
With 2009 profit, Ford again exceeds expectations
Bryce G. Hoffman / The Detroit News
The $2.7 billion profit Ford Motor Co. reported Thursday for 2009 dispelled doubts about the automaker's turnaround, but also has raised some very high expectations among investors.

Instead of trying to figure out whether Ford will survive, Wall Street is now trying to figure out how much money it will make in 2010. Expectations are running high after another quarter in which Ford's financial results exceeded analysts' projections.

But meeting those expectations will be a real challenge for a company that still has a significant disadvantage when it comes to debt -- particularly given the continuing softness in the global automobile market.


"Gone are the days when people joked that Ford stood for 'fix or repair daily' and its operating performance wasn't much better than its vehicles," said analyst Shelly Lombard of Gimme Credit. "Ford's profit and cash from operations have been improving, thanks to market share gains, better pricing and cost savings."

In 2008, Ford was criticized for abandoning its long-stated goal of returning to profitability by the end of 2009. Now, it has achieved that goal and appears well ahead of its new target of restoring "solid profitability" by 2011.

While CEO Alan Mulally called the 2009 results -- the company's first full-year profit since 2005 -- "the strongest proof yet that our 'One Ford' plan is working," he also said the company's turnaround remains "a work in progress."

"It's far from complete," he said. "The economy remains soft in key areas of the world and the global auto industry continues to wrestle with excess vehicle capacity, volatile commodity prices and a fragile supply base."

Ford ended 2009 with $34.3 billion in debt. By comparison, rival General Motors Co. was able to reduce its debt load from $94.7 billion to just $17 billion last year, albeit through bankruptcy reorganization.

Last year, the interest on that debt cost Ford about $1.5 billion. The additional debt incurred when it transferred responsibility for hourly retiree health care to a union-run voluntary employees' beneficiary association, or VEBA, will add another $600 million to that figure in 2010, said Ford Chief Financial Officer Lewis Booth.

"We're acutely aware that we still have too much debt on our balance sheet," he said. "We're going to continue to work on it."

Ford managed to cut its debt load by about $12 billion last year through a series of restructuring actions.

"We are concerned about the impact of Ford's leverage on its competitive position," Lombard said. "But Ford's recent operating performance sets the stage for future capital markets transactions."

Ford's stock, which was trading at well below $2 a share a year ago, closed Thursday at $11.41.

At that price, Ford could pay down more debt by issuing new stock. In November, the company said it would issue up to $1 billion in new equity. So far, the company has sold about $500 million.

But its bond prices also have rebounded, making it hard to repeat the other debt restructuring action the company took in 2009 when its debt was trading at distressed levels.

"Some of the opportunities that were there last year are not going to be there this year," Booth told The Detroit News. "The most important thing we can do to fix the balance sheet is get the business back to profitability, generate positive operating cash flow and then start paying down some of your debt."

Ford's operating cash flow from its automotive operations was down $300 million for the year, but up $3.1 billion in the fourth quarter. Here, too, Booth urged caution.

"Some of the cash-flow gains we achieved in the second half are not repeatable," he said. "But we are expecting positive operating cash flow, and we'll take a hard look at that operating cash-flow and decide the best way to use it."

Ratings agency Standard & Poor's said cash remains a concern at Ford.

"For the full year, Ford's automotive operating-related cash flow was $1.7 billion, a stark contrast to the $16.6 billion in cash that Ford used in 2008," it said in a report. "Looking ahead, we believe fundamental business risks will remain unchanged well into at least 2010 for all automakers including Ford."

While Thursday's numbers underscore the progress the company has made, Ford's full-year profit came from its financial services division, not its automobile operations.

In 2009, its global automotive operations actually lost more than $1.4 billion, while its lending arm, Ford Credit, and other financial business earned the company nearly $2.4 billion.

Mulally said the company's automotive operations will return to full-year profitability in 2010, both globally and in North America.

[TonyV]

Ford: First profitable year since '05

Three years of losses at Ford Motor ended in 2009 with a $2.7 billion net profit.
By Chris Isidore, senior writerJanuary 28, 2010: 12:13 PM ET


NEW YORK (CNNMoney.com) -- Ford Motor reported its first full-year profit since 2005 and said it expects to be profitable again in 2010.

The automaker, which has outpaced the turnaround at both its domestic and some overseas rivals, said Thursday that it earned $2.7 billion in 2009. The company was helped by special items that added $2.6 billion to its bottom line during the year.


But even without that assistance, Ford (F, Fortune 500) essentially broke even after taxes. That's far better than the loss of 31 cents per share that analysts had forecast for 2009. Ford lost $7.3 billion, or $3.20 a share, on that basis in 2008.

Despite the good news, Ford shares fell about 1% Thursday morning.

For the fourth quarter, the company reported a net profit of $868 million. Its operating income of $1.6 billion, or 43 cents a share, was a dramatic improvement from the operating loss of $3.3 billion, or $1.40 a share a year earlier. This also easily topped forecasts of a 26 cent per share operating profit.


Ford's automotive operations earned $1.1 billion in the quarter. The company also said auto operations added $3.1 billion to its cash flows in the quarter, a remarkable turnaround after drawing down the company's cash reserves for years.

Profits ahead. Ford also said it now expects to be profitable on a pre-tax basis in 2010. Previously, the company had said it expected profits to return in 2011 but that it was not yet willing to predict it would make money this year.

"While we still face significant business environment challenges ahead, 2009 was a pivotal year for Ford," said Ford president and CEO Alan Mulally in the company's statement. "Our progress has helped us gain market share in most of our major markets."

One of those markets was the United States. Ford's share rose to 16.1% from 15% in 2008, its first increase since 1995.

Still, auto sales plunged around much of the world in 2009. Ford's global vehicle sales fell 11% to 4.8 million, causing the company's overall revenue for the year to slide 14% to $118.3 billion.

But auto sales were much better in the fourth quarter, jumping 26% compared to a year ago to 1.4 million vehicles. Total revenue rose 22% to $35.4 billion, easily beating forecasts of $32.6 billion.

The company said it expects the sales momentum from the end of 2009 to continue into this year. And it has increased its first quarter production targets by 42% from year-ago levels.

Ford chief financial officer Lewis Booth said the bounce in sales during the last two months of the year gave the company more confidence going into 2010.

"We feel just a little more positive that the green shoots are still there, that they haven't shriveled up," Booth said.

Ford was helped last year by federal bailouts and bankruptcies at its two major domestic rivals, General Motors and Chrysler Group, actions that drove many customers who prefer domestic automakers to Ford.

"It's amazing how quickly these things can change," said Mike Boudreau, director of Michigan turnaround firm O'Keefe & Associates. "By avoiding bankruptcy, they told everyone out there -- its employees, its suppliers, its customers -- that Ford stands behind its obligations and its products."

Gaining on the imports. Ford also has enjoyed bigger gains than any of its Japanese rivals, and it begins 2010 with Toyota Motor (TM) being hit by a recall of more than 5 million vehicles in the United States and Europe and a halt in sales of its best-selling U.S. models due to problems with a sticking gas pedal.

Mulally said it is too soon to say how much Ford will benefit from Toyota's problems, but he said he's pleased with the gains the company has been making with customers who formerly bought import brands.

"It depends on how this all plays out and how fast Toyota gets this behind them," he said in response to a question during a conference call. "It's really an opportunity for our products to be viewed again."

There was a bit of bad news for Ford Thursday though, as a joint venture it has in China has halted production of a commercial van it builds there because of concerns it could be hit by the same gas pedal problems as Toyota.

But Ford's problem affects less than 2,000 vehicles in China, and so far no problems have been reported by customers, said Mulally. He said the halt in production is a precaution because the company uses the same supplier for that part as does Toyota.