Ford Posts 38% Decline in Profits
Ford Posts 38% Decline in Profits, Citing Falling Car Sales
Citing rising gasoline prices and falling car prices, the Ford Motor Company said today that its profits fell 38 percent in the first quarter, to $1.21 billion.
The company said it would step up its production cuts and break even at best in the second quarter. Ford executives also said the company was considering sale of its Hertz rental car division or other “strategic options” related to the business to shore up its cash reserves.
The company forecast that its second-quarter results would range from breaking even to a loss of 15 cents a share. And Ford executives said they would move to increase production cuts to offset falling sales, with the company now planning to produce 5 percent fewer cars and trucks in both Europe and North America.
But Ford’s report was not as dire as General Motors, which on Tuesday reported a $1.1 billion loss, its largest quarterly loss since 1992. Unlike G.M., Ford made a profit in its core business of manufacturing cars and trucks and also expended far less cash in the quarter.
Financial analysts have become increasingly frustrated at the difficulty in predicting the profits or losses of G.M. and Ford, the last two domestically owned automakers. Last week, Ford abandoned the long-term profit goal of its three-year-old turnaround plan and said it would report sharply lower earnings this year.
Today, on a teleconference and in a meeting with reporters, Ford’s chairman and chief executive, William Clay Ford Jr., sought to explain the company’s abruptly diminished outlook. He cited rising gas prices as driving customers away from medium and large sized sport utility vehicles like the Ford Explorer and Expedition much more quickly than the company had forecast. That, in turn, has led to price cuts and increased rebate offers, lowering margins in a segment that accounts for much of Ford’s sales and profitability.
Mr. Ford said he was reluctant to make steep cost cuts to meet his earnings targets because they “would be damaging to the long-term health of our company.”
“I decided not to chase a number set in a different environment,” he added.
Mr. Ford laid out the company’s turnaround plan in early 2002, shortly after becoming chief executive following a $5.5 billion loss in 2001.
The company said it was considering a sale or other options for Hertz, which it has fully owned since 2001, to strengthen its balance sheet.
“We are evaluating our strategic options with Hertz,” said Don Leclair, Ford’s chief financial officer.
The major debt ratings agencies believe that talk of bankruptcy for either Ford or G.M. is unwarranted at this point, but neither automaker is seen as particularly healthy. Standard & Poor’s has both company’s debt rated one grade above junk bond status with a negative outlook, suggesting further action is possible.
For the first quarter, Ford reported net income of $1.21 billion, or 60 cents a share, compared with $1.95 billion, or 94 cents a share, a year earlier. The figures in the latest quarter included special charges related to investments in advanced engine technologies and the restructuring of the company’s European luxury brands.
Excluding one-time charges, Ford posted first-quarter operating earnings of $1.26 billion, or 62 cents a share, easily exceeding the 39-cent-a-share consensus estimate of Wall Street analysts surveyed by Thomson Financial; analysts have been scaling back those estimates over the last week.
Revenue rose to $45.1 billion from $44.7 billion in the quarter a year earlier.
Ford’s shares rose 6 cents today to close at $9.34 on the New York Stock Exchange.
“Near term, we think Ford has less earnings risk than G.M.,” said Himanshu Patel, an analyst at J.P. Morgan, in a note to investors today. But he said that could change as G.M. introduces a new wave of sport utilities and pickups beginning next year.
Like G.M., Ford continues to make most of its money from car loans. Ford Credit, the company’s auto financing division, reported a $710 million net profit, up from $688 million in the quarter a year earlier.
Worldwide, Ford reported operating profits in its automotive operations of $579 million before taxes, excluding special items. That was down from $1.25 billion a year earlier. The shortfall was driven by the struggles of its North American operations, which reported a pretax operating profit of $663 million, down from $1.3 billion a year earlier.
Premier Automotive Group, which includes Volvo, Land Rover, Aston Martin and Jaguar, continues to produce weak operating results. The division lost $55 million in the quarter, before tax, compared with a $33 million profit a year earlier. Ford’s executives have cited Jaguar as the culprit for the division’s poor performance. Ford’s European operations reported a pretax profit of $59 million, compared to $5 million a year earlier. In Asia and Africa, the company reported a $97 million profit, up from $82 million a year earlier.