Back-to-basics plan starts to pay off; 2004 target raised.
By Eric Mayne / The Detroit News
In piling up nearly $2 billion in first-quarter profits, Ford Motor Co. not only posted its best three-month performance in four years, it also went a long way toward proving its ambitious comeback plan is for real.
“A lot of the things that we’ve taken some criticism for are coming home to pay off for us,” Ford CEO and Chairman Bill Ford said in an interview with The Detroit News on Wednesday. “And that’s where the skeptics can jump off a bridge.”
After posting combined losses of $6.4 billion in 2001 and 2002, the automaker booked pretax profits in every region of the world in the first quarter and is now on pace to achieve 2004 net earnings of $4.5 billion. Last year, Ford earned $495 million.
Deep cost reductions, limited incentives, productivity gains and a decision to avoid high-volume sales to less profitable rental car customers helped drive Ford’s first-quarter success.
Ford’s results mark the first time since 2000 that automotive operations accounted for a larger share of profits than customer financing. Ford also cut $600 million in expenses during the latest quarter, $100 million more than projected for all of 2004.
Revenues rose 10 percent to $44.7 billion from $40.8 billion.
As part of a sweeping turnaround announced in January 2002, Ford has closed plants, eliminated unprofitable model lines and cut thousands of jobs worldwide. It also has cut its dividend.
“We’re no longer putting out fires,” Bill Ford said. “We’re no longer trying to prove to the world that we’re going to be around in five years. We’re no longer trying to prove to the world that we can actually introduce new vehicles and launch them.”
Investors rallied around the earnings report and helped drive Ford shares up 10.2 percent to $14.94 in New York Stock Exchange trading Wednesday.
Bill Ford’s enthusiasm was tinged with some caution.
“We never can declare victory,” Ford said. “This is a great first quarter. We’ve had a bunch of quarters now that have been pretty good.”
Still some skeptics
For nine consecutive quarters, the automaker has exceeded Wall Street’s earnings estimates. It was expected to earn 44 cents a share during the first quarter, but earned 96 cents a share.
The company increased its full-year earnings guidance to a range of $1.50 to $1.60, up from $1.20 to $1.30 a share.
But some Wall Street analysts remain skeptical. One suggested Ford is underpromising so it can overdeliver.
“Given the track record Ford is setting, we expect the Street to conclude that Ford is sandbagging,” Deutsche Bank’s Rod Lache said.
Ford’s automotive operations earned $1.8 billion in pretax profit, up sharply from $662 million a year ago. Ford Credit, the automaker’s finance arm, earned $688 million, up from $442 million during the first three months of 2003.
“That’s the way it’s supposed to be,” said Don Leclair, Ford’s chief financial officer.
But he remains wary of the marketplace.
“The fierceness of the competition ... that’s what concerns me,” he said.
Unlike rivals such as General Motors Corp., Ford has resisted pressure to spend more on incentives that eat into profits and erode brand equity.
Data compiled by Edmunds.com, which tracks incentive spending by automakers, shows Ford trailed crosstown rivals GM and DaimlerChrysler AG’s Chrysler Group in rebates offered during March.
Including incentives paid to dealers, Ford spent an average of $2,807 per vehicle, excluding Land Rover, Jaguar, Volvo and Mazda brands. At Chrysler, rebate spending reached $3,603, while GM spent $3,394.
But by spending less on discounts, Ford has given up market share in the United States. Through March, the company has captured 19.1 percent of the market, down from 20.3 percent a year ago, according to Autodata Corp.
Still, Wall Street praised Ford’s performance. Merrill Lynch analyst John Casesa called it “impressive across the board.”
“The biggest upside came in North America (automotive operations), which earned 66 cents per share, almost twice our expectation,” Casesa wrote in a research note to clients. “North America benefited from continued cost reductions, improved mix and surprisingly favorable net pricing.”
In the brutal U.S. market, Ford said it was able to raise vehicle prices by an average 1.2 percent in the first quarter. The pricing leverage helped Ford earn pretax profits of $1.96 billion in North America in the first quarter, up from $1.2 billion a year ago, and well ahead of GM’s first-quarter North American profits of $586 million.
In Europe, Ford’s pretax profits were $5 million. But that was up significantly from last year’s first-quarter loss of nearly $250 million.
Ford’s Premier Automotive Group — comprising Volvo, Jaguar, Land Rover and Aston Martin — recorded a $20 million profit, up from a loss last year of nearly $90 million.
But a weak dollar is threatening Ford’s efforts to wring a pretax profit of $500 million to $600 million out of the Premier Automotive Group this year, Leclair said.
The automaker’s Asia-Pacific operations also rebounded from a loss, recording earnings of $28 million.
Reflecting plant retooling efforts that affect products such as the F-150 pickup and Mustang, along with two new sedans and a minivan-SUV “crossover,” Ford announced its second-quarter production in North America will fall by 53,000 units to 955,000.