The profit surprised not only us, but analysts who had predicted another loss and investors on Wall Street, the latter of which have pushed the price of Ford's stock up from $7.97 at Wednesday's close to a spike of around $8.33 this morning. It has since settled down to $8.22/share.
There are big questions looming now that we know Ford is not as bad off as we thought. The first is whether or not this profit is anomaly or if it can be sustained. The sale of Land Rover and Jaguar, as well as Volvo, which Ford confirmed are progressing, should certainly help the bottom line when they happen. The second question is whether the UAW will take advantage of Ford's good news to deny the automaker much needed concessions in its contract negotiations that are occurring as we speak. Only the passing of time will provide answers to these and other questions about Ford's fate, but it's nice to finally see the Blue Oval in the black again.
FORD REPORTS A NET PROFIT OF $750 MILLION
DEARBORN, Mich., July 26, 2007 - Ford Motor Company [NYSE: F] today reported a net profit of 31 cents per share, or $750 million, for the second quarter of 2007. This compares with a net loss of 17 cents per share, or $317 million, in the second quarter of 2006.
Ford's second-quarter revenue was $44.2 billion, up from $41.9 billion a year ago. The increase primarily reflected currency exchange, mix and net pricing improvements, partially offset by lower volume.
Ford's second-quarter profit from continuing operations, excluding special items, was 13 cents per share, or $258 million, compared with a loss of 6 cents per share, or $118 million, in the same period a year ago.**
Special items - which primarily reflected the sale of Aston Martin and the recognition of previously deferred gains on certain hedges at Jaguar and Land Rover - increased pre-tax results by $443 million in the second quarter.
With regard to Jaguar and Land Rover, the company confirmed it is currently exploring in greater detail the potential sale of the combined business and is in discussions with selected parties who have expressed interest. The company also is conducting a strategic review of Volvo that likely will conclude prior to year-end.
"We continue to focus on the four priorities of our plan - restructuring the business to operate profitably, accelerating the development of new products that our customers want and value, funding our plan and improving our balance sheet, and working even more effectively together as one global Ford team, leveraging our assets," said Ford President and Chief Executive Officer Alan Mulally. "Our team is very encouraged by the significant progress we are making. We recognize the challenges that lie ahead and remain fully committed to delivering our plan."
Second-quarter and first-half highlights:
- Strong performance in the J.D. Power and Associates Initial Quality Survey, with five segment winners - Ford Mustang, Mercury Milan, Lincoln MKZ and Mark LT, and Mazda MX-5 Miata - more than any other manufacturer.
- Ford Edge recognized as "Highest-Ranked Midsize MAV" in the J.D. Power and Associates Automotive Performance, Execution and Layout (APEAL) Study.
- Fifth consecutive year of improved manufacturing productivity as measured by the Harbour Report North America 2007.
- Ford Edge the best-selling mid-size crossover in second quarter.
- Ford Taurus, Mercury Sable and Ford Taurus X earned five-star crash-test ratings from the National Highway Traffic Safety Administration (NHTSA).
- Ford earned the most Top Safety Picks from the Insurance Institute for Highway Safety (IIHS) in the company's history, with Ford Edge, Ford Taurus, Ford Taurus X, Lincoln MKX and Mercury Sable taking top honors.
- Strong Ford Europe sales - up about 5 percent in first half of 2007.
- Record Land Rover sales - up 8 percent in first half of 2007.
- Ford China sales up 22 percent in first half of 2007.
- Achieved $1.1 billion in cost savings in first half 2007, including $600 million in the second quarter.
- Reduced North America personnel by 6,400 in the second quarter.
- Completed sale of Automobile Protection Corporation (APCO) and Aston Martin.
The following discussion of the results of our Automotive sector and Automotive segments/business units is on a basis that excludes special items. See table following "Safe Harbor/Risk Factors" for the nature and amount of these special items and any necessary reconciliations to GAAP.
On a pre-tax basis, worldwide Automotive sector profits in the second quarter were $378 million. This compares with a pre-tax loss of $716 million during the same period a year ago. The improvements were more than explained by favorable net pricing and cost reductions, partially offset by unfavorable currency exchange.
Vehicle wholesales in the second quarter were 1,773,000, down from 1,806,000 a year ago. Worldwide Automotive revenue for the second quarter was $40.1 billion, up from $37.8 billion in the same period last year. The increase primarily reflected currency exchange, mix and net pricing improvements, partially offset by lower volume.
Automotive gross cash, which includes cash and cash equivalents, net marketable securities, loaned securities and short-term VEBA assets, was $37.4 billion at June 30, 2007, up from $35.2 billion at the end of the first quarter.
Ford North America: In the second quarter, Ford North America reported a pre-tax loss of $279 million, compared with a pre-tax loss of $789 million a year ago. The improvement primarily reflected favorable net pricing and cost reductions, partially offset by lower volume net of mix. Revenue was $18.8 billion, down from $19.1 billion for the same period a year ago.
Ford South America: Ford South America reported a second-quarter pre-tax profit of $255 million, compared with a pre-tax profit of $99 million a year ago. The improvement was primarily explained by favorable net pricing and volume. Second quarter revenue improved to $1.8 billion from $1.3 billion in 2006.
Ford Europe: Ford Europe's second-quarter pre-tax profit was $262 million, compared with a pre-tax profit of $185 million during the same period in 2006. The improvement was more than explained by favorable net pricing and higher volumes, partially offset by higher manufacturing costs, primarily to support increased volumes. During the second quarter of 2007, Ford Europe's revenue was $9.2 billion, compared with $7.5 billion during the second quarter of 2006.
Premier Automotive Group (PAG): PAG reported a pre-tax profit of $140 million for the second quarter, compared with a pre-tax loss of $162 million for the same period in 2006. All PAG brands improved compared with the same period in 2006. The improvement was more than explained by favorable cost performance across all brands, including the non-recurrence of adverse 2006 adjustments to warranty accruals. Favorable net pricing was more than offset by the effect of the continued weakening of the U.S. dollar against key European currencies. Second-quarter 2007 revenue was $8.4 billion, compared with $7.8 billion a year ago.
Ford Asia Pacific and Africa: For the second quarter, Ford Asia Pacific and Africa reported a pre-tax profit of $26 million, compared with a pre-tax profit of $4 million a year ago. The improvement reflected strong cost performance, including restructuring savings, and improved results in China. These factors were partially offset by lower volume and adverse mix, more than explained by Australia and Taiwan, and unfavorable currency exchange. Revenue was $1.7 billion for the second quarter of 2007, compared with $1.8 billion in 2006.
Mazda: For the second quarter, Ford earned $81 million from its investment in Mazda and associated operations, compared with $32 million during the same period a year ago.
Other Automotive: Second-quarter results included a pre-tax loss of $107 million, compared with a loss of $85 million a year ago. The year-over-year decline was more than explained by higher interest expense associated with financing actions taken in the fourth quarter of 2006. This was partially offset by increased interest income.
FINANCIAL SERVICES SECTOR
For the second quarter, the Financial Services sector earned a pre-tax profit of $105 million, compared with a pre-tax profit of $425 million a year ago.
Ford Motor Credit Company: Ford Motor Credit Company reported net income of $62 million in the second quarter of 2007, down $242 million from earnings of $304 million a year earlier. On a pre-tax basis from continuing operations, Ford Motor Credit earned $112 million in the second quarter compared with $435 million in the previous year. The decrease in earnings primarily reflected higher borrowing costs, lower credit loss reserve reductions, higher depreciation expense for leased vehicles and higher net losses related to market valuation adjustments from derivatives. Lower expenses, primarily reflecting improved operating costs, were a partial offset.
In the second quarters of 2007 and 2006, pre-tax earnings were $428 million and $667 million, excluding the net losses related to market valuation adjustments from derivatives, which were $316 million and $232 million, respectively.
Ford expects Ford Motor Credit to earn on a pre-tax basis $1.3 billion to $1.4 billion this year, excluding the impact of gains and losses related to market valuation adjustments from derivatives, up from the previous estimate of $1.2 billion.
Safe Harbor/Risk Factors
Statements included or incorporated by reference herein may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on expectations, forecasts and assumptions by our management and involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from those stated, including, without limitation:
- Continued decline in market share;
- Continued or increased price competition resulting from industry overcapacity, currency fluctuations or other factors;
- An increase in or acceleration of market shift away from sales of trucks, sport utility vehicles, or other more profitable vehicles, particularly in the United States;
- A significant decline in industry sales, particularly in the United States or Europe, resulting from slowing economic growth, geo-political events or other factors;
- Lower-than-anticipated market acceptance of new or existing products;
- Continued or increased high prices for or reduced availability of fuel;
- Currency or commodity price fluctuations;
- Adverse effects from the bankruptcy or insolvency of, change in ownership or control of, or alliances entered into by a major competitor;
- Economic distress of suppliers that has in the past and may in the future require us to provide financial support or take other measures to ensure supplies of components or materials;
- Labor or other constraints on our ability to restructure our business;
- Work stoppages at Ford or supplier facilities or other interruptions of supplies;
- Single-source supply of components or materials;
- Substantial pension and postretirement health care and life insurance liabilities impairing our liquidity or financial condition;
- Worse-than-assumed economic and demographic experience for our postretirement benefit plans (e.g., discount rates, investment returns, and health care cost trends);
- The discovery of defects in vehicles resulting in delays in new model launches, recall campaigns or increased warranty costs;
- Increased safety, emissions (e.g., CO2), fuel economy, or other (e.g., pension funding) regulation resulting in higher costs, cash expenditures, and/or sales restrictions;
- Unusual or significant litigation or governmental investigations arising out of alleged defects in our products or otherwise;
- A change in our requirements for parts or materials where we have entered into long-term supply arrangements that commit us to purchase minimum or fixed quantities of certain parts or materials, or to pay a minimum amount to the seller ("take-or-pay" contracts);
- Adverse effects on our results from a decrease in or cessation of government incentives;
- Adverse effects on our operations resulting from certain geo-political or other events;
- Substantial negative Automotive operating-related cash flows for the near- to medium-term affecting our ability to meet our obligations, invest in our business or refinance our debt;<
- Substantial levels of Automotive indebtedness adversely affecting our financial condition or preventing us from fulfilling our debt obligations (which may grow because we are able to incur substantially more debt, including additional secured debt);
- Inability of Ford Credit to access debt or securitization markets around the world at competitive rates or in sufficient amounts due to additional credit rating downgrades or otherwise;
- Higher-than-expected credit losses;
- Increased competition from banks or other financial institutions seeking to increase their share of financing Ford vehicles;
- Changes in interest rates;
- Collection and servicing problems related to finance receivables and net investment in operating leases;
- Lower-than-anticipated residual values or higher-than-expected return volumes for leased vehicles; and
- New or increased credit, consumer or data protection or other regulations resulting in higher costs and/or additional financing restrictions.