Ford Pushes Into the Black, Snapping Losing Streak
Bolstered by Cost Cuts, Automaker Moves In on Rivals
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Friday, July 24, 2009
Ford Motor on Thursday posted a surprise profit of $2.26 billion for the second quarter, ending a streak of four straight quarterly losses.
In recent months, the carmaker has claimed market share from its American rivals, General Motors and Chrysler, while those companies struggled to restructure their operations in bankruptcy court.
Ford executives now say the automaker is on track to return to annual profitability in 2011.
"Despite the challenges, Ford's underlying business is getting progressively stronger as we launch great new products the customers want and value, while continuing to aggressively restructure our operations," Ford chief executive Alan R. Mulally said in a conference call with analysts.
Ford's gains were aided by rapid cost cutting in the second quarter. Ford reduced its debt obligations by $10.1 billion, which will save the company more than $500 million a year in interest expense. It raised $1.6 billion by issuing common stock. The company said it also cut "structural" costs by $1.8 billion, in part by eliminating 1,000 U.S. hourly jobs through buyouts.
"They're leaner and meaner than they have been in past," said George Peterson, president of research firm AutoPacific.
Ford said it is likely to make additional moves to raise cash and reduce debt. It is still looking for a buyer for its Swedish unit Volvo, which lost $231 million in the quarter.
Excluding special items, such as debt reduction, Ford would have lost $424 million in the second quarter. In comparison, the company lost $8.7 billion in the second quarter of 2008, the worst performance year in Ford's history.
Ford last pulled itself out of the red in the first quarter of 2008, earning $100 million.
Ford shares jumped 9.4 percent Thursday, to close at $6.98.
Under Mulally, Ford appears to be building better cars and trucks, analysts said. The Ford Fiesta, which launches in the United States next year, is now Europe's second-best-selling car.
"These are not cars built to the lowest common denominator anymore," Peterson said.
Ford is also shifting its lineup toward smaller, more fuel-efficient vehicles. But some analysts warn that the automaker could face a challenge selling those new models if gas prices do not climb this summer.
"Clearly the road ahead remains challenging," Mulally told analysts. "While we still expect the economy to begin to improve in the second half of the year, the recovery is likely to be more modest than many of us had hoped."
