Ford posts surprise profit of $2.3 billion in 2nd quarter

Analysts had forecast a loss for the automaker, but the company offset plunging revenue with cost cutting and debt reductions as part of an aggressive transformation.
By Ken Bensinger
July 24, 2009
Ford Motor Co. has dodged bankruptcy and found the black.

While rivals General Motors Co. and Chrysler Group filed for Chapter 11 protection in the second quarter, Ford said today that it earned $2.3 billion in the period thanks to aggressive cost cutting and debt reductions.


The results, posted today, exceeded estimates, although the company still lost $424 million in its automotive operations.

The automaker's second-quarter profit of 69 cents a share, compared to a record $8.7-billion, or a $3.89-per-share loss a year earlier, comes largely thanks to onetime gains related to its restructuring of corporate debt. Its revenue for the second quarter fell to $27.2 billion, compared with $38.6 billion a year earlier.

Still, the positive bottom line is clearly a boost to the company, which remains the only U.S. automaker able to resist taking emergency funding from the government and avoid bankruptcy.

Ford had been expected to lose about 52 cents a share, based on Wall Street analysts' expectations. In early trading today, Ford shares rose 7.8%, or 50 cents, to $6.88, on the news.

Chief Executive Alan Mulally said the company remained "on track to meet" its goal of reaching the break-even point, or even an operating profit, by 2011 as it rolls out new products in a bid to pull market share from battered competitors such as GM and Chrysler, as well as Asian rivals.

"Clearly the road ahead remains challenging," said Mulally, citing the continuing problems in the world economy. "Despite the challenges, Ford's underlying business continues to get stronger."

Much of the company's improvement comes from aggressive cost cutting, combined with debt reduction and fundraising. Ford brought in $1.6 billion in an equity offering this spring and restructured $10.1 billion in debt, thereby cutting its annual interest expenses by half a billion dollars.

At the same time, Ford has negotiated significant cost concessions with the United Auto Workers union, including reducing its cash obligations to a fund for retiree healthcare costs.

For the quarter, Ford lowered its quarterly cash burn to $1 billion, a far slower rate than in recent periods and a sign that the company's turnaround is progressing.

But with the company's cash reserves down to $21 billion, Wall Street continues to question whether Ford needs more cash, and rumors of future potential stock offerings persist.

Mulally declined to say what specific plans the automaker had to increase its cash position. Separately, he said he expected the pace of cost reductions to slow in the remainder of 2009, signaling that coming results could be less positive.

For the quarter, Ford lost $851 million in North America, compared with $1.3 billion a year ago, as the company gained crucial U.S. market share. Ford's profit in Europe fell to $138 million, compared with $582 million a year ago. In South America, Ford's operating profit was $86 million, down from $388 million in the second quarter of 2008.

Following the pillars of a plan created by Mulally, Ford has gone on the offensive during the auto industry's disastrous downturn, apparently seeing the slow sales and tight credit markets as an opportunity for future growth.

Numerous marketing studies have shown that consumers now see Ford in a far more positive light than its domestic competitors because it was able to avoid government assistance.

This year, Ford has launched or will launch several new vehicles, including the redesigned Taurus, which has already gained great acclaim.

Ford said it hoped to be able to raise prices, and reduce sales incentives on its newer offerings, increasing its competitiveness with automakers such as Toyota Motor Corp. and Honda Motor Co.

In addition, the company has announced plans to produce a battery electric version of its new Ford Focus, which will be built in Michigan.

Last month, Ford was named a recipient of $5.9 billion in loans from the Department of Energy that will help fund production of that and other vehicles.

"We plan to be in every product segment with a world-class vehicle," Mulally said.