Ford Reports Nearly $1 Billion Profit
It's now fair to declare Ford Motor (F) an unqualified turnaround story. The company reported a $997 million third-quarter profit on Nov. 2, adding profits to gains in market share and improvements in quality since CEO Alan Mulally took over in September 2006. The nearly $1 billion profit is a $1.2 billion turnaround from the third quarter of last year. The company also generated $1 billion in cash and paid down $2 billion in debt. "Ford is making tremendous progress," Mulally said on a conference call. "Our transformation is working." Strong earnings are a big victory for Ford and Mulally. The company has been far stronger than rivals General Motors and Chrysler (FIA.MI), gaining market share this year. But looking healthier than GM and Chrysler, both of which were in bankruptcy earlier this year, was hardly a great feat. Ford still has a big debt load, something that GM and Chrysler were able to greatly reduce in bankruptcy. The company dropped long-term debt to $23 billion. But adding short-term debt and obligations to the UAW's retiree health-care trust, Ford's debt is estimated at $38 billion. It's a disadvantage, but Barclays Capital analyst Brian Johnson says Ford should have enough cash to meet its needs. U.S. Market Share Up to 15.2%Ford made the earnings leap on the back of about $4.6 billion in cost reductions so far this year. But the company is making progress with consumers, too. Ford's U.S. market share is up one percentage point to 15.2%, and Ford added $100 million to automotive revenue. The company said that productivity gains, lower retiree costs, and a drop in costs in its plants all added to the bottom line. There is some real meat in Ford's improvement. The company added $1.9 billion in pretax profit by getting better pricing. Some of that may be because the incentives it had to offer were lower during the government's cash-for-clunkers program. But CFO Lewis Booth said Ford has been more disciplined at its plants, building fewer cars, so the company doesn't need deep discounts to foist excess production on the market. Its new models are also selling at fatter sticker prices, Booth said. Ford made $357 million in pretax profit in North America, after losing $2.6 billion at home in the third quarter of last year. Despite the strong quarter, Ford has still lost $1.3 billion so far this year. Ford did report a $2.3 billion profit in the second quarter, but that was thanks to a one-time special items that added $2.8 billion in black ink. Ford still had an operating loss of $424 million in the second quarter. If you strip out Volvo's $135 million loss—Ford is moving closer to selling the unit to China's Geely Automotive—the numbers look even better. Still Relying on Finance ProfitsFord's results are a big boost for the company. But a lot of work still needs to be done. Of the company's $1.1 billion pretax profit, $677 million came from the finance company. Relying heavily on finance profits has long been a crutch of U.S. automakers since profits on their cars were hard to come by. Just being in the black in today's recession is a big achievement, of course. Mulally said he expects Ford to be firmly profitable and to show positive cash flow in 2011, but he didn't give guidance for 2010 because of uncertainty over the economy. "We're not sure about the strength of the recovery," Mulally said. Ford is also flush with cash. The company has $23.8 billion in cash, up $2 billion from the second quarter. Part of that was achieved by issuing $565 million in new stock in the quarter.