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Ford tops forecasts but faces problems

BY JAMIE BUTTERS
DETROIT FREE PRESS BUSINESS WRITER

Ford Motor Co. earned more than Wall Street expected in the second quarter, but investors were disappointed by problems in North America -- and the lack of a plan to fix those problems.

The company's automaking operations in the region were plagued once again by plunging market share, rising costs and quality setbacks, leading to a huge pretax loss.

But despite the North American loss, Ford announced Tuesday that it earned $946 million, or 47 cents per share, in the April-to-June quarter, down 22% from the $1.2 billion earned in the same months of 2004.

Excluding onetime events and discontinued operations, as Wall Street analysts typically do, the company earned $936 million, or 47 cents per share, topping the average analyst expectation of 33 cents a share by about 42%.

But analysts said the surprising strength was mostly related to a tax settlement and related interest, which were not treated as onetime items but are nevertheless unlikely to be repeated.

Those tax gains almost completely offset a charge of 18 cents per share to recognize Ford's bailout of former parts division Visteon Corp. Ford had announced May 25 that it will take back 24 Visteon facilities, including those with UAW-represented workers.

Investors were unenthusiastic about Ford's results. Shares were flat most of the day, even as most other automakers' stock rose. Ford slipped 9 cents, or 0.8%, to close at $10.84.

Shares of GM rose 0.9% and DaimlerChrysler AG shares gained 1.4%.

Ford's biggest worry is the $907 million second-quarter loss, before taxes, in North American automotive operations, compared with a $454-million pretax profit in the April-to-June quarter of 2004.

Even when factoring in small profits from other parts of the world, Ford still lost $245 million before taxes in the quarter from designing, making and selling cars and trucks, compared with a profit of $97 million during the same quarter a year ago.

At the Dearborn automaker's 50th annual shareholder meeting in May, Chairman and CEO Bill Ford said he would accept almost no compensation until the company's automotive business is profitable.

His prospects didn't improve any in the second quarter.

Due in part to General Motors Corp.'s successful employee-pricing offer in June, Ford's U.S. market share fell to 16.7%, down from 18.1%. Along with the 1.4 percentage-point share loss, North American pretax profits fell by $1.4 billion.


"The numbers are a coincidence, but the direction is definitely related," said George Magliano, an economist at Global Insight Inc., a consulting firm based in Lexington, Mass.

Ford again earned a net profit only because of income from its financial services, including Ford Credit and Hertz Corp. car-rental company. But Ford Credit is no longer setting profit records and can't provide as much support to the flagging automotive business.

Ford Credit earned $1.2 billion before taxes in the second quarter, down $229 million from the same period a year ago. In all of 2004, Ford's financial services, which also include Hertz, generated more than $5 billion in pretax income.

Ford executives have warned that rising interest rates and more selective lending would lead to lower profits at Ford Credit.

"We've been saying that for a couple of years," said Don Leclair, Ford's chief financial officer. "We can't sustain that level of profitability. And I think we're seeing that now."

Quarterly forecasts halted
Ford announced Tuesday that it would stop providing quarterly earnings forecasts to Wall Street. It is ending the practice, Leclair said, due to volatility in the market. That reflects the intense pressure on prices consumers see at dealers' lots, as well as challenges predicting the price of gas at the pump, he said.

The implied guidance for the second half of the year is essentially break-even, said John Casesa of Merrill Lynch. The company has earned $1.09 per share so far this year, excluding special items, and reiterated its plan to earn between $1 and $1.25 per share for the year.

With no significant profits in line for the second half -- and competition increasing -- Ford is in a tough spot, said Peter Morici, a business professor at the University of Maryland.

"As things currently stand, Ford does not make cars that excite customers, and Ford does not make cars that it can sell at a profit," he said in an e-mail. "Looking forward, Japanese and Korean automakers are expanding capacity to service the North American market and the cost/price squeeze on Ford and General Motors will intensify in 2006 and 2007."

He also warned that more job cuts and plant closures are likely.

Leclair acknowledged that Ford has too many plants and faces high costs for raw materials and tough competition that leads to lower prices. But he declined to say specifically what would be done about it all.

Ford already has closed one plant in England, and another in Ohio will be closed at the end of this year, Leclair noted.

He added that Ford is profitable everywhere except North America and promised to have a plan by the end of the year that would eventually bring North American operations up to the level of other automotive units.

"This is a company that's committed to making the changes ... needed to be a leader in the global auto industry," he said in an interview with the Free Press.

"We will lay out our plans before the end of this year."

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Stacy94PGT
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.....