Markets & Finance

Ford Gets a Modest Lift


Shares advanced Thursday after the automaker unveiled better than expected results

Ford Motor Co. (F) said Apr. 26 that it ended up losing less money during recent months than Wall Street had expected, as the beleaguered auto maker struggles to get its finances in order at the same time it improves its products.

The Dearborn (Mich.) company posted a net loss of $282 million during the first quarter of 2007, compared with $1.4 billion in the same period last year. "Our first quarter results came in somewhat stronger than expected, but there are many uncertainties going forward. We remain focused on improving our quality, productivity and business performance," CEO Alan Mulally said in a press release Apr. 26.

The company has had to take tough steps during the first quarter to survive. Ford cut 18,000 positions in North America. It also sold businesses -- even its luxury car maker Aston Martin went for a paltry $848 million (see BusinessWeek.com, 3/13/07, "After Aston, Could Jaguar Be Next?").

The payoff was that Ford ended up losing 15 cents per share during the first quarter, while analysts surveyed by Thomson Financial had expected 60 cents loss.

Ford has also been trying to win customers by doing things like introducing new products and improving existing ones. Thanks to such efforts, Ford's first-quarter revenue was $43 billion, up from $40.8 billion a year ago. The consensus estimate was for only $34.45 billion.

After the news investors bid up Ford's stock by 4.1% to $8.20 per share on the New York Stock Exchange Apr. 26. But they continue watching the company closely.

"Although Ford released first-quarter results Thursday that showed signs of hope, a closer look at the numbers offers a stark reminder of the challenges facing the company as it fights for survival," Morningstar analyst John Novak said in an Apr. 23 research note. Among other things, he pointed out that Ford's North American retail market share (excluding fleet sales) fell 70 basis points, to 10.1%, resuming a troubling downward trend after showing a slight improvement at the end of last year. "The drop in share is noteworthy since it ultimately indicates how far and fast the company must shrink if it is to return profitability," Novak says.

At the heart of Ford's falling market share has been an over-reliance on trucks and sport-utility vehicles while those vehicles have been falling out of fashion with many consumers, and too few compelling and attractive passenger cars and crossover SUVs. It is trying to rapidly make over its lineup, and has been recently getting new Edge and Lincoln crossovers into dealerships. The company has also beefed up the engine offering in what has already been a successful trio of cars-Ford Fusion, Mercury Milan, and Lincoln MKZ.

But several badly needed models won't be arriving until 2008 and 2009, including a small car, a slickly designed Fairlane crossover SUV, a second Lincoln crossover, a replacement for the Ford Explorer that is lighter and more fuel-efficient than the current truck-based Explorer, and the new F-150 pickup (see BusinessWeek.com, 12/21/06, "Lessened Bankruptcy Fears Lift Ford Shares").

Luckily, Ford has cash to deploy into new investments at this point. The company reported having $15.7 billion of cash as of March 31, compared to $16 billion in December.

"Though we do not expect No. American operations to be profitable in '07 or '08, and we see significant cash outflows from operations and restructuring during that period, we do believe Ford has enough liquidity to fund turnaround efforts," Standard & Poor's Corp. analyst Efraim Levy said in a research note. (S&P, like BusinessWeek.com, is owned by The McGraw-Hill Companies.)

David Kiley contributed to this report


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