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Ford Profit Ups Expectations

October 27, 2011
4 min to read


Ford Motor Co.'s strong third-quarter earnings of $1.65 billion met some resistance Wednesday from an investment community wanting assurances the fourth quarter won't disappoint.


That is what happened a year ago: High expectations for the automaker with a history of outperforming expectations led to fourth-quarter results lower than Wall Street anticipated. The subsequent fall from grace saw Ford stock fall in a correction of sorts — shares are down more than 30 percent in the last year, according to The Detroit News.

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Ford stock closed at $11.87 Wednesday, down 4.5 percent for the day.


Chief Financial Officer Lewis Booth found himself fielding questions about the cost of launching new vehicles in the fourth quarter and any further hits from commodity prices.


Both were factors in last year's disappointing fourth-quarter results, which saw earnings of only $190 million.


Booth and CEO Alan Mulally assured nervous investors that Ford will be profitable for the full year, even with challenges in Europe, which is embroiled in economic uncertainty.


"We delivered solid results for the third quarter despite an uncertain business environment," said Mulally, noting the company is on track to exceed last year's $8.3 billion pretax operating profit with $7.7 billion through the first nine months.

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"Our product plans remain on track," Mulally said.


No cutbacks are planned, but global engineering and efficiencies have reduced structural costs to $1.6 billion for the year — less than the $2 billion projected.


Capital expenditures also will be less costly at about $4.6 billion, compared with $5 billion to $5.5 billion forecast as part of the full-year plan.


Brian Johnson of Barclays Capital was reassured.


"Ford delivered a quarter that was stronger than on first glance," he said in a report later in the day.

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"And we are not taken aback by the absence of a dividend announcement, which we see more likely following the full year release," Johnson said.


Booth said he recognized that investors wanted more specifics than the automaker wanted to provide, including when dividends will be restored. The last dividend was 5 cents, paid in September 2006.


"We want to return to paying a dividend as soon as we think our balance sheet can stand it," Booth said.


Shareholders can expect modest amounts initially, but payouts will be more than token amounts, he said.


The balance sheet is shaping up for dividends to resume next year.

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Ford announced third-quarter earnings of $1.65 billion or 41 cents per share, making it the 10th consecutive profitable quarter for the company, even though earnings decreased by $38 million from a year ago.


Widely watched pretax operating profit dipped $111 million to $1.9 billion or 46 cents per share which beat analysts' expectations of 44 cents in earning per share. It was the ninth straight month of pretax profit.


Operating profit took a $350 million hit because prices fell on hedged commodities.


Standard & Poor's said Ford would have had better results now if not for volatility in commodity pricing.


The company now expects U.S. sales to hit 13 million for the year. Booth said a few months ago he thought sales would be closer to 12.9 million.

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But that has been revised after a good September and expectations that October sales, which will be reported Tuesday, will also be strong.


"Ford is still benefiting from good will for not taking a bailout. Ford is getting higher margins because people are choosing to buy their cars," said Stephen Spivey, senior industry analyst with Frost & Sullivan in San Antonio.


Edmunds.com senior analyst Michelle Krebs said the near-record results for the quarter are partly attributable to higher average transaction prices, at $32,391 per vehicle sold in the U.S.


"Ford's solid third-quarter financial performance relied on the winning formula of higher sales volume, lower incentives and healthier transaction prices," said Krebs.


Booth said Ford is adding production in the fourth quarter. Two-thirds of production will be trucks and SUVs, which are the most profitable vehicles.

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As a result, transaction prices are expected to remain strong.


Pretax operating profit from automotive operations was $1.3 billion for the quarter, which is $45 million more than a year ago. North American operations generated a pretax profit of almost $1.6 billion — flat compared with a year ago — but Ford lost money in Europe, Asia Pacific and Africa during the quarter.


Last week, two ratings agencies, Fitch Ratings and Standard & Poor's, bumped Ford up to one notch below investment grade upon ratification of the new labor agreement that kept labor costs to less than 1 percent annually.


Booth said on Wednesday that the company is starting to see the benefits of the ratings upgrades on Ford's spreadsheets.

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