Ford's profit the biggest in 12 years

[Corzza]

* Hope this isnt a double post*

Last Updated: July 24. 2010 1:00AM.

Ford Motor Co. earned $2.6 billion on higher car and truck sales in the second quarter, its biggest quarterly profit in 12 years, and repaid some of the debt that it took on to ride out the industry downturn.

"We're ahead of where we thought we'd be after this excellent first half, and we expect even better results in 2011," Ford President and Chief Executive Alan Mulally said.

"It appears to us we're going to be able to improve the balance sheet and reduce the debt," he told analysts and reporters Friday.

Compared with its crosstown rivals, Ford made it through the downturn intact, after borrowing $23 billion in late 2006.

But its heavy debt load left Ford at a disadvantage relative to General Motors Co. and Chrysler Group LLC, which shed their debts in bankruptcy.

Now, after five consecutive profitable quarters, Ford repaid $7 billion of debt, trimming interest expenses by more than $470 million.

Chief Financial Officer Lewis Booth said the company expects to go from having net debt to a positive cash position sometime next year. "That's a strong statement about how the business is going," he said.

Ford's better-than-expected results triggered a rally in its shares, which closed up 5.29 percent at $12.73.

The company's $2.6 billion quarterly profit, on revenue of $31.3 billion, compares with a $2.26 billion profit a year earlier and was the highest quarterly total since the first quarter of 1998.

Its pre-tax operating profit totaled $2.9 billion, or 68 cents per share, Ford's best quarterly operating performance since the first quarter of 2004. The operating results exceeded analysts' expectations, averaging 41 cents per share, and reflected gains in the company's automotive and financial services businesses.

Ford's pre-tax profits in North America of $1.9 billion also were well above most estimates. Its overseas operations were profitable, too.

During the second quarter, Ford sold 1.4 million vehicles, up from 1.2 million a year ago.

The automaker is benefiting from the savings generated by a restructuring under Mulally, as well as higher vehicle prices reflecting the growing strength of its brands while many of its rivals are struggling.

Looking back, Booth described the move by Chairman Bill Ford Jr., Mulally and former CFO Don Leclair to mortgage most of Ford's assets and take out the loans as "a brilliant bit of work. I don't think anyone anticipated how bad the recession would be," he told The Detroit News.

"We still have more debt on our books than our competitors," he said. In the second quarter, Ford had $5.4 billion in net debt, down from $9 billion at the end of the preceding quarter.

But, Booth added, "we would not trade all of our debt for all of the problems of becoming bankrupt." He cited the upheaval that GM and Chrysler have experienced, while Ford was able to pursue its strategy under the same management team.

GM and Chrysler appear to be on the mend, as well. GM returned to profit in the first quarter, for the first time since 2007, and Chrysler says it's profitable so far this year, on an operating basis.

"A great deal has been made over the fact that Ford has significantly more debt than General Motors," said Shelly Lombard, a bond analyst at research service Gimme Credit. "But Ford appears to have more operating momentum. If it can keep turning that momentum into cash, it should be able to reach its goal of zero net debt this year."

This year, Ford has been one of the winners in the U.S. market. It boosted its share to 16.9 percent from 16.4 percent a year earlier, recovering its second-place ranking from Toyota Motor Corp., which suffered a slew of quality problems and recalled millions of vehicles. GM, meanwhile, has cut brands and dealers. Its U.S. market share, along with Chrysler's, has slipped.

Ford's product rollout continues this year with a new Explorer SUV, a Fiesta small car, substantially refreshed Ford Edge and Lincoln MKX crossovers, and an electric Transit Connect van.

Within the industry, Ford has gained recognition for improving its vehicles. In J.D. Power and Associates' Initial Quality Study, the Ford brand was the highest-ranked mainstream brand.

As demand and its business picks up, Ford faces higher commodity prices and structural costs associated with rising production and vehicle development. Its commodity costs and structural costs are each expected to rise by $1 billion this year.

For seasonal reasons, the second half of the year will be slower than the first half. The second half will include planned shutdowns and launch costs.

"As in most years, Ford's first-half results will be stronger," the company said.

Next year's operating profit, however, is predicted to top this year's.

The question mark remains the economy. Ford officials said it appeared to be on track, but the company trimmed the top of the range of its U.S. market forecast and now expects industry-wide sales to total between 11.5 million and 12 million this year.

"We're in a period of slow recovery," Booth said. "It's not a rapid recovery -- but we think it's sustainable."