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US:Ford results seen underscoring turnaround pressure

Ford results seen underscoring turnaround pressure


DETROIT -- Ford Motor Co. on Thursday, July 20, will post its second set of quarterly results since a sweeping restructuring dubbed the Way Forward was launched, but the expected drop in profits could look more like a big step backward.

Ford, which lost $1.2 billion in the first quarter, cautioned last week that business conditions had become tougher for the No. 2 U.S. automaker over the past six months.

High gasoline prices have caused consumers to shift away from SUVs and large trucks to smaller and less profitable cars -- an area of relative weakness for Ford.

"The headwinds we faced at the beginning of 2006 have only become stronger," CEO Bill Ford said recently.

Analysts expect Ford's second-quarter earnings to range from a profit of 7 cents to 21 cents per share, excluding items. The average estimate, based on the 15 analysts surveyed, was for a profit of 14 cents per share, according to Reuters Estimates.

That would represent a 70 percent decline in earnings per share from a year earlier.

But Wall Street expects that the worst is yet to come for Ford, with an average estimate of a loss of 10 cents per share in the current quarter and an overall net loss of $608 million for the year.

Analysts are forecasting a loss of 10 cents a share in the third quarter followed by an overall net loss of $608 million for the year, according to Reuters Estimates.

Ford has stopped providing earnings forecasts since January.

JP Morgan analyst Himanshu Patel said Ford's second-quarter results may have a nasty surprise because it was selling fewer higher-priced trucks.

"We think Ford second-quarter results could disappoint, driven by a potential steep decline in North American product mix," he said.

Overall, Ford's North American light vehicle production was flat in the quarter. Further, large SUV and pickup production fell 33 percent and 5.5 percent, respectively, indicating a squeeze on profit margins, according to Deutsche Bank analyst Rod Lache.

Investors are expected to look beyond the 7 percent decline in U.S vehicle sales already reported for the quarter and focus on Ford Motor Credit, which makes loans to buyers of its cars and trucks.

With Ford's North American auto business struggling it has relied on compensating profits from the financing arm, but results for that unit are expected to show some weakening because of high borrowing costs, analysts said. Moreover, Ford Motor Credit's own financing costs have risen as its credit ratings have sunk into junk territory.


Investor confidence in Ford has waned since the automaker rolled out its turnaround plan in January. To stem losses in North America, which totaled $1.6 billion in 2005 and $457 million in the first quarter, Ford announced plans to shutter 14 plants and cut 30,000 jobs.

But the continued decline in sales of its best-selling SUVs and stalling demand for its F-series pickups through the first half of the year appears to have the potential to derail the turnaround effort that hinges on job and capacity cuts, analysts have said.

Some now doubt if Ford will succeed in returning its North American auto operations to profit in 2008 as promised.

Only one analyst has a "buy" rating on Ford's stock compared to five "buy" or "outperform" ratings for larger rival General Motors, which has posted bigger losses and is in the midst of its own contentious restructuring.

Ford shares have slid 17 percent this year, while GM's have gained 42 percent, partly because of a possible alliance with Nissan Motor Co. and Renault SA.

To hasten its turnaround and conserve cash, Ford last week cut in half its dividend and fees paid to board members.

Even so, Moody's Investors Service downgraded Ford's debt further into junk status, citing the "considerable additional stress" on the automaker in North America.

"Despite the fact that solid market acceptance of Ford's new mid-size and full-size cars has helped maintain U.S. market share above 18 percent, the dramatic shift away from the SUV segment undermines prospects that Ford's Way Forward restructuring program will materially strengthen its weak credit metrics before 2008," Moody's said last week.

Ford, which has indicated that it could be open to an alliance of the kind that GM is now considering with Renault-Nissan, is valued at just over $12 billion, about a fourth of the market capitalization of DaimlerChrysler.

Like other struggling companies carrying debt, including GM, Ford's shares also trade below the value of the cash on its books.

At a ratio of just over 8.5 times next year's forecast earnings, Ford shares are more cheaply priced than GM at 9 times forecast 2007 earnings. Ford stock is also trading at only about half of the price-to-earnings ratio of the average share in the S&P 500 index.

My first car was a 67 Mustang Coupe, 2nd one was a 67 Cougar XR-7, 3rd one was a 66 Mustang Coupe. Why did I get rid of these cars for ? I know why, because I'm stupid, stupid, stupid.

My next Ford.....
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