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Stacy94PGT · 04-08-2005, 21:30

Ford drops $7 billion pre-tax profit goal

Automaker cuts earnings guidance for 2005

By Dale Jewett
Automotive News

DETROIT -- Ford Motor Co. no longer expects to meet CEO Bill Ford Jr.’s promise of earning $7 billion in pre-tax profits by 2006. It also cut its expected earnings for this year by at least 23 percent.

Ford on Friday said its full-year earnings will range between $2.30 billion and $2.76 billion, or $1.25 to $1.50 a share. That compares to expectations at the start of this year for earnings to range between $3.21 billion and $3.58 billion, or $1.75 to $1.95 per share. Ford has issued about 1.84 billion shares of stock.

The automaker warned that the new estimates don’t account for the effects of special items, including spending for the Premier Automotive Group, investments in fuel-cell technology and sale of non-core businesses. Ford expects those items to cost between $147 million to $183.7 million for the year.

At the same time, the automaker expects its first-quarter earnings to come in higher than its forecast of 25 cents to 35 cents per share. But Ford didn’t say how much it would beat the expectation.

Ford’s move follows that of rival General Motors, which on March 16 cut its forecast and warned that its cash flow would turn from $2 billion positive to $2 billion negative for the year.

Despite the cut in earnings, Ford says it still expects its automotive operating cash flow to be positive for the year.

“There are actions we could take to achieve our pre-tax profit goal of $7 billion for 2006,” Bill Ford said in a statement, “but we will not mortgage Ford’s future by chasing an objective set under vastly different market and economic conditions.”

The automaker blames higher costs for steel and oil, health care costs and currency exchange rates for the cut.

“Analysis of recent market trends, which include the prospect of higher and sustained gasoline prices and continued aggressive pricing actions by competitors, have led us to conclude that further challenges lie ahead,” CFO Don Leclair said in a statement.

GM blamed slow sales in North America at the start of the year and growing material and health-care costs for its revised earnings forecast.

On Tuesday, April 5, GM CEO Rick Wagoner said he was taking command of GM North America. The move was to free up Vice Chairman Robert Lutz and GM North America President Gary Cowger to focus on global assignments.

Stacy94PGT · 04-09-2005, 05:42

Higher costs force Ford to slash profit estimates

By David Phillips / The Detroit News

Ford Motor Co., citing higher prices for gasoline, raw materials and health care, as well as other growing challenges, warned Friday its 2005 earnings will fall as much as 35 percent from its previous guidance.

And the automaker said it no longer expects to post annual pre-tax profits of $7 billion as early as 2006, blaming "vastly different market and business conditions."

The surprise announcement was made after the end of trading on the New York Stock Exchange, where Ford shares closed down 27 cents, or 2.39 percent, at $11.03. Standard & Poor's Corp. immediately changed its outlook on the automaker to negative from stable, and said it could lower its rating at any point if Ford's outlook doesn't improve in the mid-term.

U.S. automakers are being battered by unprecedented competition from Asian and European rivals. The combined U.S. market share of GM, Ford and DaimlerChrysler AG's Chrysler Group has dropped 1.3 percentage points this year to 57.8 percent.

General Motors Corp. warned last month its 2005 profits will plunge as much as 80 percent because of falling U.S. sales, an unfavorable product mix and escalating health care costs.

Last month, Ford said its full-year 2005 earnings-per-share would be at the lower end of a range from $1.75 to $1.95 a share. It now expects to earn $1.25 to $1.50 a share during 2005, while first-quarter earnings will exceed previous guidance of 25 to 35 cents a share.

While it still expects its automotive operating cash flow to be positive this year, Ford said its 2005 automotive pre-tax profits will break even at best. The latest estimates exclude special items, which include additional moves to restructure its luxury brand group, investments in fuel cell research, and the sale of a non-core business.

Deteriorating business conditions, particularly in the United States, are undermining Ford's profitability. The automaker's U.S. sales are down 5 percent in an overall flat market. And demand for some of Ford's most profitable vehicles, including the F-series pickup, and Explorer and Expedition SUV, has dropped sharply this year, in part because of high gas prices.

While Ford was counting on a boost from the introduction of several new models this year, such as the Five Hundred sedan and Freestyle crossover wagon, demand for the vehicles has been mixed.

"Historically high prices for steel and crude oil, escalating health care expenses and a weak U.S. dollar presented formidable challenges as we entered 2005," Ford chief financial officer Don Leclair said in a statement. "Throughout the first quarter we saw those and other business factors worsening."

The prospect of higher and sustained gasoline prices and continued aggressive pricing moves by rivals also prompted Ford to lower its earnings guidance.

The warning is a setback for Ford Chairman and CEO Bill Ford Jr., who launched a major restructuring of the automaker in 2001. Ford has taken aggressive steps to slash costs, including plant closings, job reductions, and a cut in its annual dividend.

Over the past three years, it has reduced expenses by $4 billion. It plans a new round of early-retirement offers to cut an estimated 1,000 additional U.S. white-collar posts in coming months.

"Although one of our strongest ever product line-ups has been well received by consumers around the world, we are not immune to the broad economic challenges we all face in our industry," Bill Ford said in a statement.

While Bill Ford said the company could take additional steps to achieve pre-tax profits of $7 billion by 2006, he said the automaker would not sacrifice product development or capital spending.

"We are unwilling to cut the essential investments in the products, technologies, infrastructure and expanding markets that are the very building blocks of our future," he said.

Like GM, major credit ratings are now poised to downgrade Ford to below investment grade following the warning.

"We now view the rating as weak," Standard & Poor's credit analyst Scott Sprinzen said in a statement "The rating can tolerate several quarters of weak profitability and cash flow, but only under the assumption that financial performance will improve to more satisfactory levels thereafter."