Ford Motor Co. posted surprise second-quarter earnings Thursday of $750 million (EUR546.57 million), its first profitable quarter in two years, thanks to job cuts, slimmer losses in North America and good sales overseas.
The company also said the sale of its Jaguar and Land Rover subsidiaries was probable, and it said its U.S. market share rose during the quarter.
Still, President and Chief Executive Alan Mulally said investors should not think that Ford has turned the corner to consistent profitability.
"These accomplishments are something to be proud of, but we are not ready to declare victory," he said, predicting substantial losses in the third and fourth quarters, when sales volume is traditionally lower. The company does not expect a return to full-year profitability until 2009.
Ford's second-quarter profit of 31 cents per share compares to a net loss of $317 million (EUR231.02 million), or 17 cents per share, in the same quarter of last year.
It surprised 15 Wall Street analysts surveyed by Thomson Financial who expected the company to lose 35 cents per share excluding special items.
The company attributed the gains to significant year-over-year improvement in all of its automotive operations, cost cuts due to restructuring and positive special items that totaled $443 million (EUR322.84 million). That includes a $206 million (EUR150.12 million) gain related to sale of its Aston Martin unit.
Even its struggling North American division showed progress, although it still lost $279 million (EUR203.32 million) before taxes.
Ford has shed 27,000 hourly and about 10,000 salaried jobs since September 2006 through early retirement and buyout offers as it tries to shrink itself to match lower demand for its cars and trucks. The company has mortgaged its factories to set up a $23.4 billion (EUR17.05 billion) credit line to fund the restructuring and cover expected losses.
Even without the positive special items, the company still made money in the quarter, posting a profit of $258 million (EUR188.02 million), or 13 cents per share. That compares to a loss of $118 million (EUR85.99 million), or 6 cents per share, in the year-ago quarter.
The timing of the positive quarter might be bad, given that the company just opened critical contract talks with the United Auto Workers and hopes to cut labor costs by around $25 (EUR18.22) per hour to better compete with Asian rivals.
With the company making money, the UAW may not be as willing to make concessions, although Mulally said that would not be the case.
"I think it's never a bad time to have a good quarter," he said. "Everybody really does understand the situation we're in. We still lost $279 million (EUR203.32 million) in North American operations. We have a lot of work to do to get back to profitability."
Ford shares rose 25 cents, or 3.14 percent, to $8.22 in late-morning trading Thursday.
Chief Financial Officer Don Leclair said the profitable quarter helped Ford to reduce its estimated cash burn through 2009 from $17 billion (EUR12.39 billion), to $15 billion (EUR10.93 billion) to $16 billion (EUR11.66 billion).
Ford said it is discussing the possible sale of Jaguar and Land Rover with parties that have expressed interest in the British units. And the company said it is conducting a strategic review of Volvo "that likely will conclude prior to year end."
Mulally also said the probability of selling Jaguar and Land Rover is greater than 50 percent, although he said it would not take place this week.
Dearborn-based Ford reported revenue of $44.2 billion (EUR32.21 billion) for the quarter, a 5.5 percent gain over the $41.9 (EUR30.53) billion reported in the year-ago period.
Ford said its automotive sector made $378 million (EUR275.47 million) for the quarter, compared to a pretax loss of $716 million (EUR521.79 million) during the second quarter of last year. The loss in its core North American operations narrowed by $510 million (EUR371.67 million) from the $789 million (EUR574.99 million) lost in the second quarter of last year.
The company reported cost reductions of $600 million (EUR437.25 million) for the quarter, or $1.1 billion (Ђ0.8 billion) for the full year, primarily due to health care cost concessions negotiated with the United Auto Workers, the reduced work force and lower warranty repair costs.
It also reported that its U.S. market share rose to 15.6 percent for the quarter from 15.1 percent in the first quarter. The share had been dropping. It was 16.7 percent in the second quarter of 2006.
Ford's Premier Automotive Group, which includes Jaguar, Land Rover and Volvo, reported a pretax profit of $140 million (EUR102.03 million) for the quarter, an improvement over the pretax loss of $162 million (EUR118.06 million) for the same period in 2006. The company said all brands showed improvement.
Argus Research Corp. senior automotive analyst Kevin Tynan said analysts were off in their earlier assessments because they were looking at a wide band of estimates for Ford, but added that the automaker still hasn't turned the corner to profitability.
"The $279 million (EUR203.32 million) loss in North America is still a problem," Tynan said.
Operating profit from Premier Automotive Group is a good sign "but essentially all of those brands are on the block and up for sale," Tynan said. "Going forward, you will be eliminating that profit."
Other signs of lingering trouble is Ford Motor Credit's profit still being down significantly from last year's second quarter, he added.
"Ford has driven a lot of the costs out of the system already and it's still not profitable," Tynan said. "It really does get more difficult from here. The easy costs are already out. Now, if you need more cost-reduction, especially in North America, where do you get them?"
The automaker's Asia Pacific and Africa unit made a pretax profit of $26 million (EUR18.95 million), and Ford made $255 million (EUR185.83 million) pretax in South America. In Europe, Ford made $262 million (EUR190.93 million), and its financial services arm turned a pretax profit of $105 million (EUR76.52 million), down from $425 million (EUR309.72 million) in the same quarter last year.
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