As a result of its earnings, the automaker said it will move to pay down its substantial debt sooner than anticipated and step up production for the fourth quarter by 20,000 units. Originally, Ford had said that it aimed to have zero net debt by the end of 2011. Now the Blue Oval is aiming for the same goal by the end of this year. That means that the company will have the same amount of debt as it has funds to pay it.
Of course, those numbers all hinge on excluding Volvo from the picture. Total revenue for the third quarter of 2010 was $29 billion, which is around $1.3 billion less than the same period of 2009. If you nix Volvo revenue from the picture, however, the Ford bottom line increases by the $1.7 billion mentioned above. Hit the jump for the full press release.
[Sources: Ford, Automotive News, The Detroit Bureau | Image: AP/Paul Sakuma]
* Ford reports third quarter net income of $1.7 billion, or 43 cents per share, a $690 million improvement from third quarter 2009. Pre-tax operating profit totaled $2.1 billion, or 48 cents per share, a $1.1 billion improvement from third quarter 2009++
* Ford is announcing further actions to reduce Automotive debt and strengthen its balance sheet, including further paying down its revolving credit line by $2 billion; plans to use cash to fully prepay the remaining $3.6 billion of debt owed to the VEBA retiree health care trust; and conversion offers on two convertible debt securities
* Ford now expects its Automotive cash to be about equal to its debt by year end, earlier than previously expected. This will be an improvement of $8 billion to $9 billion from the end of last year
* Ford ended the quarter with $23.8 billion of Automotive gross cash and total liquidity of $29.4 billion. Automotive operating-related cash flow was $900 million positive
* Revenue for the quarter totaled $29 billion, a decline of $1.3 billion from third quarter 2009; excluding Volvo revenue from 2009, revenue increased $1.7 billion ++
* Ford Automotive operations posted a third quarter pre-tax operating profit of $1.3 billion, a $953 million improvement from third quarter 2009++
* Ford North America reported third quarter pre-tax operating profit of $1.6 billion, a $1.3 billion improvement from third quarter 2009
* Ford Credit reported third quarter pre-tax operating profit of $766 million, an $89 million improvement from third quarter 2009, and provided Ford with a $1 billion distribution during the quarter
* Ford will deliver solid profits in 2010 with positive Automotive operating-related cash flow, and continued improvement in 2011
DEARBORN, Mich., Oct. 26, 2010 – Ford Motor Company [NYSE: F] today reported third quarter net income of $1.7 billion, or 43 cents per share, a $690 million improvement from third quarter 2009, as strong products, momentum in North America and continued success at Ford Credit fueled growth amid still-challenging business conditions.
Excluding special items, Ford reported a pre-tax operating profit of $2.1 billion, or 48 cents per share, an improvement of $1.1 billion from a year ago. Ford has posted pre-tax operating profits for five consecutive quarters.
Ford's third quarter revenue was $29 billion, a decline of $1.3 billion from the same period a year ago. Excluding Volvo revenue from 2009, Ford's revenue in the third quarter was up $1.7 billion compared with the same period a year ago.
Ford North America posted a third quarter pre-tax operating profit of $1.6 billion, a $1.3 billion improvement from third quarter 2009. The company is on track to gain full-year market share in the U.S. for the second straight year, marking the first time since 1993 that Ford has achieved consecutive annual increases.
Ford also announced Automotive debt reduction actions to strengthen the balance sheet, including further paying down its revolving credit line by $2 billion in the third quarter; prepayment of the remaining $3.6 billion of debt owed to the VEBA retiree health care trust by the end of October; and conversion offers on two convertible debt securities in the fourth quarter.
"This was another strong quarter and we continue to gain momentum with our One Ford plan," said Ford President and CEO Alan Mulally. "Delivering world class products and aggressively restructuring our business has enabled us to profitably grow even at low industry volumes in key regions.
"The key drivers for improvement in 2011 will be our growing product strength, a gradually strengthening economy and an unrelenting focus on improving the competitiveness of all our operations," Mulally added.
Automotive operating-related cash flow was $900 million positive in the third quarter, primarily reflecting pre-tax operating profits. Ford finished the third quarter with $23.8 billion in Automotive gross cash, an increase of $1.9 billion since the second quarter. Including available credit lines, total Automotive liquidity was $29.4 billion at the end of the quarter.
The $2 billion revolver payment, made on Sept. 9, lowers Ford's interest expense without impacting its overall liquidity. As of Sept. 30, Ford's total Automotive debt was $26.4 billion.
On Friday, Ford will use cash to fully prepay the remaining $3.6 billion of debt it owes the VEBA retiree health care trust. This will lower ongoing annual interest expense by about $330 million. Including the VEBA payment in the fourth quarter, Ford will have reduced its total Automotive debt by $10.8 billion from year-end 2009, which will decrease its ongoing annual interest expense by about $800 million.
In addition, Ford has launched conversion offers for its senior convertible debt securities, of which $3.5 billion is outstanding and $2.6 billion is carried as debt on its Sept. 30, 2010 balance sheet. Holders will be offered a cash premium as an inducement for them to convert the debt into shares of Ford common stock.
Ford's debt and interest expense will be reduced to the extent holders elect to accept the conversion offers. Completion of the conversion offers, however, will result in fourth quarter special items charges associated with the cash premium and the non-cash loss related to the debt retirement. Any shares issued under these conversion offers are already reflected in Ford's fully diluted earnings per share calculation.
Even without the benefit of these conversion offers, Ford now expects its Automotive cash to be about equal to its debt by year end, earlier than previously expected. This will be an improvement of $8 billion to $9 billion from the end of last year.
"Our performance through the first nine months has clearly exceeded our initial expectations and is enabling us to make additional significant balance sheet improvements in the fourth quarter," said Lewis Booth, Ford executive vice president and chief financial officer. "We are now in a period where we are focusing on growing the business profitably around the world following the hard work that has been done by the entire Ford team to fix the fundamentals of the business."
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 cost changes is measured primarily at prior-year exchange, and excludes special items and discontinued operations. In addition, costs that vary directly with volume, such as material, freight, and warranty costs are measured at prior-year volume and mix.
THIRD QUARTER 2010 HIGHLIGHTS
* Announced plan with joint venture partners in China to invest $500 million for a new engine plant in Chongqing that will more than double capacity
* Announced Ford and Mazda will invest $350 million in the AutoAlliance Thailand joint venture compact pickup plant in Thailand
* Announced plan to launch eight new vehicles in India by mid-decade and export Ford Figo from India to 50 markets
* As a result of competitive agreements at several U.S. plants, Ford is bringing in-house approximately 2,000 hourly jobs
* Completed sale of Volvo Car Corporation to Zhejiang Geely Holding Group as the company continues to implement its One Ford plan
* Continued actions to reduce debt by paying down $2 billion of the drawn amount of the revolving credit line
* Revealed the full family of Focus body styles at the Paris Motor Show, including the global Focus ST, and SYNC for Europe. The new Focus will roll out in North America, Europe and Asia Pacific Africa starting next year
* The new Ford Edge and Lincoln MKX went on sale in North America with MyFord Touch and MyLincoln Touch technology
* Launched sales of the Fiesta in Thailand in September as Ford continued introducing the vehicle across Asia and the Americas
* Unveiled reinvented Explorer SUV with more than 30 percent fuel economy improvement over current model. Explorer will go on sale in North America later this year
* Announced new family of F-150 powertrains that will deliver improved fuel economy and capability
* Launched sale of all-new C-MAX and freshened Mondeo in Europe
* 2010 U.S. model lineup earned eight Top Safety Picks from the Insurance Institute for Highway Safety. Ford has the most Top Safety Picks of any automaker
* Reported a 9 percent sales increase in the U.S. and gained 1.3 percentage points of market share, including strong performances from F-Series, Taurus, Fiesta and Edge
* Ford of Canada continued to maintain leadership in the market, posting a 2.3 percentage point market share increase and its best September performance in more than 30 years
* Posted a 28 percent sales increase in Asia Pacific Africa, including a 14 percent increase in China led by Fiesta demand and a 190 percent increase in India led by sales of the new Ford Figo
For the third quarter of 2010, Ford's worldwide Automotive sector reported a pre-tax operating profit of $1.3 billion, compared with a profit of $341 million a year ago. The improvement primarily reflects favorable volume and mix, net pricing and exchange, offset partially by higher costs, including higher structural costs to support volume and growth of product plans and higher commodity costs.
Compared with a profit of $2.1 billion in the second quarter of 2010, Automotive sector pre-tax operating profit decreased by $800 million, explained primarily by lower volume and unfavorable exchange, offset partially by favorable net pricing and lower net interest expense as a result of Ford's debt reduction actions.
Total vehicle wholesales in the third quarter were 1.3 million units. Excluding Volvo from 2009, the wholesale increase was 91,000 units. Worldwide Automotive revenue in the third quarter was $26.7 billion, down from $27.3 billion a year ago. Excluding Volvo from 2009, Automotive revenue increased by $2.4 billion.
North America: For the third quarter, Ford North America reported a pre-tax operating profit of $1.6 billion, compared with a profit of $314 million a year ago. The year-over-year increase was explained primarily by favorable volume and mix and net pricing. Third quarter revenue was $16.2 billion, up from $13.4 billion a year ago.
South America: For the third quarter, Ford South America reported a pre-tax operating profit of $241 million, compared with a profit of $247 million a year ago. The year-over-year decrease was explained primarily by higher commodity costs, offset partially by favorable net pricing. Third quarter revenue was $2.5 billion, up from $2.1 billion a year ago.
Europe: For the third quarter, Ford Europe reported a pre-tax operating loss of $196 million, compared with a profit of $131 million a year ago. The year-over-year decline primarily reflects lower industry volume and market share and higher costs, including structural costs to support product launch and engineering spending and higher commodity costs. Third quarter revenue was $6.2 billion, down from $7.3 billion a year ago.
Asia Pacific Africa: For the third quarter, Ford Asia Pacific Africa reported a pre-tax operating profit of $30 million, compared with a profit of $22 million a year ago. The year-over-year increase is explained primarily by higher industry volume and material cost reductions, offset partially by higher structural costs to support investment in Ford's product and growth plans and market mix shifts from mature to emerging markets. Third quarter revenue was $1.8 billion, up from $1.5 billion a year ago.
Other Automotive: Other Automotive consists primarily of interest and financing-related costs, and resulted in a third quarter pre-tax loss of $369 million, explained primarily by net interest expense of $346 million.
FINANCIAL SERVICES SECTOR
For the third quarter, the Financial Services sector reported a pre-tax operating profit of $761 million, compared with a profit of $661 million a year ago.
Ford Motor Credit Company: For the third quarter, Ford Credit reported a pre-tax operating profit of $766 million, compared with a profit of $677 million a year ago. The year-over-year increase primarily reflects a lower provision for credit losses and lower depreciation expense for leased vehicles, offset partially by lower volume and the non-recurrence of prior-year net gains related to unhedged currency exposures.
Ford said it continues to make progress on all four pillars of its plan:
* Aggressively restructuring to operate profitably at the current demand and changing model mix
* Accelerating the development of new products that customers want and value
* Financing the plan and improving the balance sheet
* Working together effectively as one team, leveraging Ford's global assets
Ford expects fourth quarter 2010 production to be up 27,000 units compared with year-ago levels. Fourth quarter production will be up 89,000 units compared to third quarter 2010 production, reflecting the normal seasonal increase following summer shutdowns, as well as new product launches and projected industry growth as economic conditions improve. Overall, Ford's production plans are consistent with its strategy to match supply to demand.
Ford expects full-year 2010 U.S. industry volume to be 11.6 million units. In the 19 markets Ford tracks in Europe, full-year industry volume is expected to be 15 million units.
Each of Ford's regions is on track to improve quality compared with a year ago, based on the latest Global Quality Research System surveys.
In the first nine months of 2010, Automotive structural costs were $700 million higher than a year ago, and commodity costs were $750 million higher. Ford expects full-year Automotive structural and commodity costs each to be about $1 billion higher than a year ago. The higher Automotive structural costs support volume and growth of Ford's product plans. As a percentage of revenue, Ford's cost structure continues to improve.
Ford expects both its full-year U.S. market share and share of the U.S. retail market to improve compared with a year ago. Europe market share is expected to be down compared to a year ago and Ford expects full-year market share to be consistent with year-to-date performance of 8.6 percent.
Capital expenditures were $2.8 billion in the first nine months. Ford now expects full-year spending to be about $4 billion as the company continues to realize efficiencies from its global product development processes while keeping its product plans on track.
Ford expects to continue to deliver solid results in the fourth quarter with each of its operations being profitable and expects fourth quarter Automotive operating-related cash flow to be positive.
Ford Credit's full-year 2010 profits will be higher than 2009, although the company expects its fourth quarter profits to be lower compared with recent quarters because of smaller expected improvements in the provision for credit losses and depreciation expense for leased vehicles.
Overall, Ford will deliver solid profits and positive Automotive operating-related cash flow for 2010, providing a solid foundation for continuing growth.
Ford expects to build upon its performance this year with continued improvement in 2011 in total Company profitability and Automotive operating-related cash flow. This includes improvement in its Automotive operations, driven primarily by growing product strength with new vehicles, continued productivity improvements and the gradually strengthening global economy.
In addition, Ford expects each of its Automotive operations to be profitable in 2011. Ford also expects solid profitability for Ford Credit in 2011, although at a lower level than 2010, reflecting primarily the non-recurrence of lower lease depreciation expense and non-recurrence of credit loss reserve reductions of the same magnitude as 2010.
Global industry volume for 2011 is expected to grow from the 2010 level.
"The entire global Ford team remains focused on continuously improving our core operations and expanding the business in key growth regions of the world," Mulally said. "Our plan is to continue to improve our competitiveness to deliver profitable growth for all."