AP
Ford posts surprise 1Q profit, still expects full-year loss
Thursday April 24, 4:56 pm ET
By Tom Krisher, AP Auto Writer
Ford swings to $100M profit in 1Q, predicts full-year loss but says it will make money in 2009


DEARBORN, Mich. (AP) -- Despite a surprise profit of $100 million for the first quarter, Ford Motor Co. said Thursday that it still expects to lose money this year as the U.S. auto market deteriorates.

But the company's stock surged nearly 12 percent as CEO Alan Mulally reiterated his promise that restructuring will return Ford to black ink for 2009.

The profit, Ford's first since the second quarter of last year, came even during a time when concerns about the U.S. economy kept many car buyers away from showrooms. Ford sales were off about 9 percent for the quarter, and the trend away from trucks and sport utility vehicles accelerated, hurting its bottom line.

Yet Ford said it earned money anyway because of strong profits in Europe and South America, manufacturing cost reductions and successful hedging on commodity price increases.

"The underlying business is improving," Mulally said in a conference call with industry analysts and reporters. "We remain cautiously optimistic despite the external difficulties."

But the question that has dogged Ford for years remains: Does the company, which lost $2.7 billion last year and mortgaged its assets to stay in business, have time to finish restructuring before it runs out of cash?

Mulally says the answer is yes, even as U.S. auto sales and the economy continue to unravel.

Ford's management team, he said, adjusts its plan every week "as we deal with the realities and deteriorating business environment." The key, as Mulally often repeats, is to drop factory capacity to match demand for Ford products.

The core North American market still is the spot that many analysts see as a drag on Ford's plan. And Ford itself acknowledged a string of challenges.

Based on economic concerns, the company reduced its industrywide estimate for U.S. light vehicle sales this year to a range of 15 million to 15.3 million. In January it had forecast full-year sales of 15.7 million.

Ford also cut second-quarter production estimates for North America by 101,000 vehicles compared with the same period last year, a figure that is 20,000 lower than guidance from the previous quarter.

And it said that 4,200 hourly workers accepted its latest round of early retirement and buyout offers, which isn't enough. The company will offer more packages at individual plants, and wouldn't rule out layoffs.

Mulally, hired from aviation giant Boeing Co. to rescue Ford, points to progress made under the restructuring strategy, including $3.3 billion in cost cuts compared with since the end of 2005. The plan includes raising that to $5 billion by the end of this year.

Ford said its automotive sector had $28.7 billion in cash on hand and $11.9 billion in credit lines available as of March 31, for total liquidity of $40.6 billion. It still expects to spend $12 billion to $14 billion through 2009 to cover losses and fund the restructuring, and Chief Financial Officer Don Leclair said that leaves plenty of cash.

Standard & Poor's credit analyst Gregg Lemos-Stein agreed that the company has ample cash to withstand an economic downturn.

"While industry conditions are getting much worse in the U.S., the first-quarter results are positive in the face of all these headwinds," he said.

The quarterly profit came despite a $45 million pretax loss in Ford's North American automotive market. That was an improvement over a $613 million loss in the year-ago quarter, driven by $1.2 billion in cost reductions.

Kevin Tynan, an analyst with New York-based Argus Research, predicts Ford will burn more cash than its forecasts because of dwindling U.S. sales.

And while he's impressed with Ford's cost-cutting efforts, S&P's senior industry analyst Efraim Levy said he's not convinced that Ford has the product lineup to pull out of trouble. The new F-150 pickup, due out later this year, probably will run into difficult economic times, and other products such as the Focus small car aren't generating enough profits to make a huge difference, he said.

"It's still a show-me story, and I think it's going to stay that way for a while," he said.

Ford's overall first-quarter profit, while not huge, is a big improvement over a $282 million net loss for the same period last year. Revenue came to $39.4 billion, down from $43 billion a year ago due to the sale of its Jaguar-Land Rover and Aston Martin units. Excluding the sale, revenue would have been up slightly, the company said.

The profit surprised Wall Street analysts who had expected another loss, and Ford shares closed up 88 cents, or 11.7 percent, at $8.40.

"Ford appears to be well positioned, sticking to its plan," said Mark Warnsman, an analyst with Calyon Securities. "It may not be exciting, but they seem to be delivering on it."

Ford Motor Co.: http://www.ford.com