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Ford Posts Strong Financial Data, First Profit Since 2005

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Alan Mulally

Alan Mulally

The rumors were true: Ford Motor Company has just published financials from the third quarter of 2009, and without being overly optimistic, it's fair to say that the data is moderately rosy. Among several bright spots in the report, one that seems particularly impressive is that July - September of 2009 saw Ford North America's first profit since the first quarter of 2005, four-and-a-half years ago.

In addition to Ford's North American pre-tax profit of $357 million, the company recorded a total net income of $997 million during Q3. That's a substantial improvement on the roughly $200 million loss posted one year ago, during Q3 of 2008 (which was, as you recall, about the time that the entire industry began sliding off a cliff). Ford anticipates being fully profitable by calendar year 2011.

In the company's official press release (pasted below), Ford cites several reasons for its improved financial data, including reduced production expenses, strong product lineups, and higher transaction prices and profit margins. Over the three months, Ford increased market share in the U.S. by 2.2% and posted a small but respectable .6% growth in Europe. Most shockingly, Ford sales exploded in China, surging upward by 63%.

What's not much mentioned in the release, of course, is Cash-for-Clunkers, which had a huge impact on the company's sales in North America. However, even the aberrations associated with America's Cash-for-Clunkers can't account for the profitability of Ford's global operations. So, while we know there's room for skepticism when it comes to some of Ford's figures, it seems hard to argue with the fact that Ford is on the right track.

We're not financial analysts or advisers (obviously), but there appears to be quite a lot for Ford to crow about in Q3 of 2009. If you have nothing else to do on this Monday morning, feel free to scan Ford's full press release below and give us your take on the news.

* * * * *

Ford Posts Third Quarter 2009 Net Income of $1 Billion; Cash Flow Turns Positive; North America Profitable(+)

DEARBORN, Mich., Nov. 2 /PRNewswire-FirstCall/ --

  • Reported net income of $997 million, or 29 cents per share, an improvement of $1.2 billion from the third quarter of 2008. Pre-tax operating profit totaled $1.1 billion, an improvement of $3.9 billion from a year ago. It is Ford's first pre-tax operating profit since the first quarter of 2008
  • Ford North America posted a pre-tax operating profit of $357 million, its first profitable quarter since the first quarter of 2005
  • Reduced Automotive structural costs by $1 billion, bringing the total reduction to $4.6 billion through the first nine months of 2009, and exceeding the full-year target of $4 billion
  • A strong product lineup drove market share gains in North America, South America and Europe as well as continued improvements in transaction prices and margins
  • Ended the quarter with $23.8 billion of Automotive gross cash, up $2.8 billion from the end of second quarter 2009(++)
  • Achieved positive Automotive operating-related cash flow of $1.3 billion for the third quarter, a $2.3 billion improvement over the second quarter
  • Ford Credit reported a pre-tax operating profit of $677 million, a $516 million improvement from a year ago
  • Ford now expects to be solidly profitable ( )in 2011, excluding special items, with positive operating-related cash flow
     Financial Results Summary              Third Quarter  First Nine Months
                                            -------------  -----------------
                                            2009     O/(U)    2009       O/(U)
                                                      2008               2008
                                            ----     -----    ----       ----
    Wholesales (000)(+)                     1,232      57    3,377     (891)
     Revenue (Bils.) (+)                     $30.9   $(0.8)   $82.9   $(26.2)

     Operating Results (+)
    --------------------------
     Automotive Results (Mils.)               $446  $3,385  $(2,493)    $523
     Financial Services (Mils.)                661     502    1,194    1,305
                                               ---     ---    -----    -----
       Pre-Tax Results (Mils.)              $1,107  $3,887  $(1,299)  $1,828

     After-Tax Results (Mils.)(+++)           $873  $3,882  $(1,557)  $2,381

     Earnings Per Share (+++)                $0.26   $1.58   $(0.54)   $1.22

      Special Items Pre-Tax (Mils.)           $108 $(2,099)  $3,265   $9,484
      -----------------------------

     Net Income/(Loss) Attributable to Ford
     --------------------------------------
     After-Tax Results (Mils.)                $997  $1,158   $1,831  $10,619
     Earnings Per Share                      $0.29   $0.36    $0.61    $4.55

     Automotive Gross Cash (Bils.)
     (++)                                    $23.8    $4.9    $23.8     $4.9
    ----------------------------------       -----    ----    -----     ----

    See end notes following conference call details.

Ford Motor Company [NYSE: F] today reported net income of $997 million, or 29 cents per share, in the third quarter as strong new products, structural cost reductions and improved results at Ford Credit lifted the company's results despite continued weak global economic conditions. This is a $1.2 billion improvement compared with the same period last year.

Excluding special items, Ford posted pre-tax operating profits totaling $1.1 billion, an improvement of $3.9 billion from a year ago. This marks the company's first operating profit since the first quarter of 2008. On an after-tax basis, excluding special items, Ford posted an operating profit of $873 million in the third quarter, or 26 cents per share, compared with a loss of $3 billion, or $1.32 per share, a year ago.( )

Ford's North American operations posted a pre-tax operating profit of $357 million, its first quarterly profit since the first quarter of 2005. Ford South America, Ford Europe and Ford Asia Pacific Africa also posted pre-tax operating profits in the third quarter.

"Our third quarter results clearly show that Ford is making tremendous progress despite the prolonged slump in the global economy," said Ford President and CEO Alan Mulally. "Our solid product lineup is leading the way in all markets. While we still face a challenging road ahead, our One Ford transformation plan is working and our underlying business continues to grow stronger."

Ford's third quarter revenue was $30.9 billion, down $800 million from the same period a year ago. Automotive revenue is up $100 million from a year ago. This improvement was offset by a decrease in Ford Credit's revenue reflecting a decline in receivables.

Ford reduced its Automotive structural costs by $1 billion in the quarter, largely driven by lower manufacturing and engineering costs, which included benefits from improved productivity, personnel reduction actions primarily in North America and Europe, and progress on implementing its common global platforms and product development processes. Through the first nine months, Ford has achieved $4.6 billion in Automotive structural cost reductions, exceeding its full-year 2009 target of $4 billion.

Ford finished the third quarter with $23.8 billion in Automotive gross cash, compared with $21 billion at the end of the second quarter of 2009. Automotive operating-related cash flow was $1.3 billion positive during the third quarter of 2009, an improvement of $2.3 billion from the second quarter 2009. Automotive operating-related cash flow was $3.4 billion negative during the first nine months.

"The Ford team delivered another solid quarter of results with strong contributions from all our business regions," said Lewis Booth, Ford executive vice president and chief financial officer. "Positive cash flow, a stronger balance sheet and a third quarter operating profit are evidence that Ford is meeting the global economic challenges."

The following discussion of third quarter highlights and results are on a pre-tax basis and exclude special items. See tables following "Safe Harbor/Risk Factors" for the nature and amount of these special items and any necessary reconciliation to U.S. GAAP. Discussion of Automotive overall operating cost changes is at constant volume, mix, and exchange, and excludes special items; discussion of Automotive structural cost changes is at constant exchange and excludes special items.

THIRD QUARTER HIGHLIGHTS

  • Ford again increased year-over-year market share in North America, South America, and Europe and continued to achieve improvements in transaction prices and margins. Ford maintained market share in the Asia Pacific Africa region and Volvo gained market share. Other sales highlights:
    • In the U.S., third quarter market share increased 2.2 percentage points compared to last year as the Ford, Lincoln and Mercury brands all posted sales gains
    • Ford Europe's market share was 9.2 percent for the quarter, up 0.6 points from last year and the highest third-quarter level in 10 years. Market share was 10.1 percent in September, the highest monthly share in eight years
    • Record growth in China continued as Ford third quarter sales jumped 63 percent
    • At the end of the third quarter, worldwide sales of the new Ford Fiesta reached 470,000 units since its launch last fall. The No. 2 best-selling car in Europe posted its highest September sales since 1994. In September, Fiesta also had its best sales month ever in China. Fiesta arrives in the U.S. market in 2010
    • Began selling the new Ford Taurus and Transit Connect in North America. Taurus sales in September were up 60 percent from a year ago
    • The Ford Focus and Ford Escape were among the top new vehicles purchased in the U.S. government's "Cash for Clunkers" program
    • Ford's U.S. hybrid sales have risen 73 percent this year compared to a 14 percent decline in U.S. hybrid industry sales. More than 60 percent of Ford Fusion hybrid sales have come from non-Ford owners
  • Began production of the Ford Transit Connect small commercial van at the new manufacturing plant in Craiova, Romania
  • Announced investment of $500 million at Ford India's Chennai assembly plant to build the new Ford Figo, a small car targeted at the heart of the Indian market, debuting in 2010
  • Announced a new $490 million assembly plant in Chongqing, China, which will be completed by 2012, and will produce the Ford Focus for the Chinese market
  • Ford, Lincoln and Mercury brand vehicles in the U.S. had the fewest number of "things gone wrong" among all automakers, according to the third quarter GQRS study of new vehicle quality
  • Received $886 million in loans from the U.S. Department of Energy for development of more fuel-efficient vehicles. Ford has been approved for up to $5.9 billion in loans in support of projected expenditures through mid-2012
  • Raised $565 million in new equity as Ford completed its previously-announced plan to issue up to $1 billion of equity
  • Ford Credit completed $10 billion in funding in the third quarter, including $2.8 billion unsecured, and now has essentially completed its full-year funding plan
  • The Ford Taurus and Lincoln MKT both earned a "Top Safety Pick" from the Insurance Institute for Highway Safety. Ford Motor Company continues to have more IIHS "Top Safety Pick" ratings than any other automaker
  • Unveiled the all-new Ford C-MAX at the Frankfurt Motor Show. The C-MAX and the Grand C-MAX will debut in Europe in 2010, and the Grand C-MAX debuts in the U.S. in 2011. The new global C-car platform will underpin up to 10 models and more than 2 million units annually by 2012
  • Announced that Ford's 1.6-liter and 2.0-liter four-cylinder EcoBoost engines will make their debut in 2010 across Europe, North America, and Australia
  • Unveiled the new Ford Figo to compete in India's small car segment beginning in 2010
  • Launched the new Ford Fiesta in Taiwan and continued the successful rollout of the Ford Focus and Ford Everest SUV in additional Asian markets
  • Revealed the new 2011 Ford F-Series Super Duty and two new powertrains developed by Ford - a 6.7-liter V8 diesel engine and a 6.2-liter V8 gasoline engine
  • Began selling the 2010 Ford F-150 SVT Raptor, an off-road performance truck, which captured the "2009 Pickup Truck of Texas" award from the Texas Auto Writers. The Ford F-150 won the overall "Truck of Texas" award, the seventh straight year a Ford truck has earned the honor
    AUTOMOTIVE SECTOR

    Automotive Sector*        Third Quarter     First Nine Months
                              -------------     -----------------
                             2009  O/(U) 2008    2009  O/(U) 2008
                             ----  ----------    ----  ----------
    Wholesales (000)        1,232          57   3,377        (891)
    Revenue (Bils.)         $27.9        $0.1   $73.3      $(23.6)
    Pre-Tax Results (Mils.)  $446      $3,385 $(2,493)       $523
    *excludes special items
    -----------------------


For the third quarter of 2009, Ford's Automotive sector reported a pre-tax operating profit of $446 million, compared with a pre-tax loss of $2.9 billion a year ago. The improvement primarily reflects favorable net pricing, structural cost reductions, lower material costs and improved market share, offset partially by unfavorable exchange and lower industry volumes.

Worldwide Automotive revenue in the third quarter was $27.9 billion, up $100 million from a year ago. The increase is more than explained by favorable net pricing and higher volumes, primarily in North America, offset partially by unfavorable exchange. Total vehicle wholesales in the third quarter were 1,232,000, compared with 1,175,000 units a year ago.

Automotive structural cost reductions in the third quarter totaled $1 billion, including $500 million in North America. Manufacturing and engineering costs were $500 million lower, largely reflecting the continued benefits of improved productivity, personnel reduction actions primarily in North America and Europe, and progress on the implementation of Ford's common global platforms and product development processes. Pension and retiree health care costs were lower, reflecting the effect of the UAW Retiree Health Care VEBA agreement. Overall, Ford reduced Automotive structural costs by $4.6 billion during the first nine months.

Net pricing was $1.9 billion favorable, primarily explained by higher U.S. net pricing, reflecting the success of new products, a continued disciplined approach on incentives and selective top-line pricing.

North America: For the third quarter, Ford North America reported a pre-tax operating profit of $357 million, compared with a loss of $2.6 billion a year ago. The improvement was primarily explained by favorable net pricing, lower material costs, structural cost reductions, favorable series mix and improved market share, offset partially by unfavorable exchange and lower U.S. industry volume. Third quarter revenue was $13.7 billion, up from $10.8 billion a year ago.

South America: For the third quarter, Ford South America reported a pre-tax operating profit of $247 million, compared with a profit of $480 million a year ago. The decrease is more than explained by unfavorable exchange, primarily in Brazil and Argentina. Third quarter revenue was $2.1 billion, down from $2.7 billion a year ago.

Europe: For the third quarter, Ford Europe reported a pre-tax operating profit of $193 million, compared with a profit of $69 million a year ago. The improvement was more than explained by structural cost reductions, lower material costs and favorable net pricing, offset partially by unfavorable volume and mix and exchange. Third quarter revenue was $7.6 billion, down from $9.7 billion a year ago.

Asia Pacific Africa: For the third quarter, Ford Asia Pacific Africa reported a pre-tax operating profit of $27 million, compared with a profit of $4 million a year ago. The increase primarily reflects favorable net pricing, China joint venture profits, and cost reductions, offset partially by unfavorable exchange. Third quarter revenue was $1.5 billion, down from $1.7 billion a year ago.

Volvo: Volvo continues to be reported as an ongoing operation. The effects of "held-for-sale" accounting-related adjustments are reported as special items. For the third quarter, Volvo reported a pre-tax operating loss of $135 million, compared with a loss of $458 million a year ago. The improvement is more than explained by continued progress on cost reductions, favorable exchange, and higher volume and mix. Third quarter revenue was $3 billion, up from $2.9 billion a year ago. Also, as announced last week, Ford confirmed Geely as the preferred bidder in the ongoing discussions concerning the possible sale of Volvo Cars.

Other Automotive: Other Automotive, which consists primarily of interest and financing-related costs, was a third quarter pre-tax loss of $243 million.

    FINANCIAL SERVICES SECTOR

    Financial Services Sector*            Third Quarter    First Nine Months
                                          -------------    -----------------
    (in millions)                        2009 O/(U) 2008    2009  O/(U) 2008
    ------------                         ---- ----------    ----  ----------
     Ford Credit Pre-Tax Results         $677       $516  $1,287      $1,388
     Other Financial Services             (16)       (14)    (93)        (83)
                                         ----        ----   ----        ----
     Financial Services Pre-Tax Results  $661        $502 $1,194      $1,305
                                         ====        ==== ======      ======
    *excludes special items
    -----------------------



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