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U.S.A.:Ford promises 2nd consecutive quarterly profit

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By Bill Koenig / Bloomberg News

DETROIT -- Ford Motor Co., the second-largest automaker, promised a second consecutive quarterly profit after Chief Executive William Clay Ford Jr. sped up cost cuts.

The last time Ford Motor had two profitable quarters in a row was the end of 2000 and start of 2001, before Bill Ford took over. Second-quarter earnings, due Wednesday, should be 19 cents a share, according to a Thomson Financial survey of analysts.

Bill Ford, 46, is steering the company toward a 2003 profit goal of 70 cents a share by axing costs faster than he initially targeted. Ford took $638 million in expense reductions in the first quarter that were slated for future years. The company unveiled in 2002 a plan to cut $9 billion in costs by 2005.

"There's some pretty positive momentum." said Andrew Palmer, who helps invest $1.6 billion in bonds at ASB Capital Management Inc., including Ford debt. "The last earnings report was a real catalyst."

Ford Motor had first-quarter net income of $896 million, more than double analysts' expectations. The profit spurred gains in Ford bonds and a 46 percent surge in the company's shares during the three months ended June 30.

Bill Ford is "doing a good job" on expenses, said David Williams, managing director at Excelsior Value and Restructuring Fund, which owns 700,000 Ford Motor preferred shares convertible into stock. Williams said he expects a "surprise on the upside" when Ford reports second-quarter results.


What Was Cut


The company lowered costs for materials and parts, pared manufacturing and design expenses, and trimmed warranty costs as improved vehicle quality led to a drop in claims, Allan Gilmour, vice chairman, said in May.

Gilmour will step down as Ford's chief financial officer at the end of the month and be replaced by 27-year Ford Motor veteran Don Leclair. Gilmour will stay as vice chairman.

Bill Ford has said lower operating costs will make up for higher expenses related to pensions, health care and incentives for vehicle buyers. The great-grandson of company founder Henry Ford is only halfway to fulfilling his vow of preventing a third straight annual loss, which hasn't happened since 1980-1982. He's trying to reverse two years of losses and cap the automaker's centennial year with a profit.

"Cost is where we're delivering surprises on the positive side," Bill Ford said June 12 at an event for the company's 100th anniversary. "We've attacked costs with great vigor."


Pension Liabilities


Ford's worldwide unfunded pension liability rose to $16.4 billion on March 31 from $15.6 billion at the end of 2002. Ford has contributed $1 billion to its pension plan this year.

Excelsior's Williams said containing costs is helping the company weather declining demand.

Ford Motor's U.S. sales declined 2.3 percent in the first half of 2003, and its share of the U.S. auto market slipped to 21.2 percent from 21.3 percent a year earlier, according to Autodata Corp.

Industrywide sales in the U.S. fell 1.8 percent in the first half, Autodata said. U.S. sales and market share increased for Japanese-based rivals such as Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co. during the period.

DaimlerChrysler AG's Chrysler unit, the third-biggest U.S. automaker, estimated it had a $1.17 billion second-quarter loss and General Motors Corp., Ford's bigger rival, said its full-year profit goal is at risk from increasing costs of rebates and no- interest loans.


Less Than General Motors


Ford spent $3,711 per car on rebates and low-cost loans last month, less than General Motors' $3,969 and more than Chrysler's $3,496, according to CNW Marketing Research. While Ford Motor had higher incentive costs than Chrysler, Ford was able to partially offset incentive spending by raising prices of some models and selling vehicles with more options to customers.

The yield on Ford Motor's 7 1/4 percent bond due Oct. 25, 2011 dropped to 6.819 percent on June 30 from 8.682 on March 31, while the stock climbed to $10.99 from $7.52 in that period.

Not all investors are reassured by Bill Ford.

"We're a little concerned whether it's turning around or just a head fake," said Daniel Genter, who holds Ford debt among $1.6 billion in securities he oversees as president of RNC Genter Capital Management. "A lot of their products have gotten a little tired."


Allaying Concerns


Ford in September will begin selling a redesigned version of its F-150 pickup truck, one of the top-selling U.S. vehicles, as well as the new Five Hundred sedan and the Freestyle, a car-like sport-utility vehicle, next year.

"Market demand has not picked up," said Brian Bruce, director of global investments for PanAgora Asset Management. Ford needs to cut plant capacity, he said.

Bill Ford hasn't shut any of the five North American factories targeted for closure in January 2002. A Canadian site won't close until mid-2004, while closing dates for the four U.S. sites won't be determined until the completion of negotiations with the United Auto Workers union, which begin this week. Ford has a total of 49 North American plants.

Bill Ford received $21.8 million in stock options and other compensation last year and didn't receive any cash salary. He said June 16 that he'll again forgo a salary this year.

Ford's net losses totaled $6.43 billion in 2001 and 2002 as sales fell, costs increased and the company paid $2.1 billion to replace Firestone-brand tires on Explorer sport-utility vehicles and other truck models.
 
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