Ford Says 2Q Profit Falls As Costs Rise

DEARBORN, Mich. (AP) -- Ford's ambitious plans to grow in Asia and retake the luxury market in the U.S. took a toll on its second-quarter profit, with higher costs offsetting rising sales.
The company said Tuesday it earned $2.4 billion, or 59 cents per share, down 8 percent from $2.6 billion, or 61 cents per share, a year earlier.

Ford Motor Co. warned last month that its profit could slip, citing investments in future products. Worldwide sales were up 7 percent, but the company spent more on raw materials like steel and copper and on product development.

In Asia, Ford reported a pretax profit of just $1 million, down $112 million as it invests in new plants and products. Ford wants to introduce five new cars in India and 10 cars in China in the next four years. The company currently controls less than 3 percent of the market in both India and China.

In addition to the slew of new cars in Asia, the company is in the midst of an expensive overhaul of its flagging Lincoln luxury brand in the U.S. It also plans to introduce the hybrid-only C-Max minivan in the U.S. early next year.

"We're completely focused on the future," Chief Financial Officer Lewis Booth said.

Without one-time items, including $110 million for employee reductions, Ford would have earned $2.9 billion, or 65 cents per share. That beat analysts' forecast of 60 cents per share.

Ford also said it is spending more to increase production because of rising post-recession demand. U.S. consumers are expected to buy nearly 2 million more cars this year than they did last year. Dealers say they are selling some Ford Focus sedans hours after they hit the lot. Earlier this month, Ford held a lottery to fill 1,800 jobs at its Louisville Assembly Plant after nearly 17,000 people applied.

Ford projects that annual U.S. sales will be in the lower end of its 13 million to 13.5 million forecast.

U.S. auto sales stumbled in the quarter, losing the momentum they had before the March 11 earthquake in Japan. Some buyers turned to Ford and other brands when Japanese cars were in short supply. But others seem determined to wait until later this year, when Japanese supplies will be replenished and prices are expected to fall.

Ford was able to command higher prices for its cars and trucks in the U.S., partly because of tight supplies of vehicles after the earthquake.

For the second quarter, revenue rose 13 percent to $35.5 billion. Analysts polled by FactSet had forecast revenue of $32.15 billion.

Ford paid off $2.6 billion in debt during the quarter. The company now has $14 billion in debt, down from $16.6 billion in the same quarter a year ago, a legacy of its 2006 decision to borrow $23 billion to restructure the business. Ford hopes its steady reduction in debt will convince ratings agencies to return the company to investment-grade status, which would make it cheaper to borrow money.

Booth said ratings agencies aren't expected to act until after the company completes contract talks with the United Auto Workers union. Ford and the UAW are expected to kick off negotiations on a new contract this Friday.

Ford shares were up 1.7 percent to $13.39 in premarket trading.

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