Ford earns $2.6 billion in first quarter

Ford, helped by new models, rising U.S. sales, and a rebound in Europe, reported a first-quarter profit of $2.6 billion today.

In the first quarter of 2010, Ford earned just over $2 billion. Ford's 2011 first quarter pre-tax operating profit was $2.8 billion, an increase of $827 million from the year-earlier period. Revenues totaled $33.1 billion, up $5 billion from a year ago. The year-earlier revenues exclude those from Volvo, which Ford subsequently sold.

“We continue to accelerate our One Ford plan around the world, delivering on our commitments to serve our global customers with a full family of best-in-class vehicles and deliver profitable growth for all, despite uncertain economic conditions,” Ford CEO Alan Mulally said in a statement.

Operating profit in Europe nearly tripled from a year earlier to $293 million. A $51 million pretax loss in Europe had contributed to Ford's 79 percent decline in profit in the fourth quarter.

The automaker warned that quarterly results in the latter part of the year may not be as strong as the first quarter, citing lower expected profit at Ford Motor Credit Co., increasing commodity costs, seasonal factors that favor the first half of the year and higher investments and costs related to its longer-term growth and brand plans.

Still, the first-quarter performance puts Ford on track for its third straight year of annual profit after posting losses totaling $30.1 billion from 2006 through 2008.

Ford has recovered from the downturn faster than rivals and has become one of the most profitable automakers.

With new models such as the Fiesta subcompact and Explorer crossover that offer improved fuel economy, the automaker is also better positioned to cope with rising gasoline prices in the U.S.

Gas prices are not spiking as quickly as they did in 2008. That's allowing Ford management to better monitor prices weekly and make production adjustments as needed.

“If we see consumer purchasing decisions soften up a bit, we'll make production adjustments,” Ford CFO Lewis Booth said today. “But we don't see that yet. We've seen some shift toward smaller vehicles.”

Ford's sales in the U.S., its largest market, increased 12 percent during the first quarter. The automaker launched a redesigned Explorer crossover in the quarter and sales of the profitable F-Series pickup rose 23 percent as more small business owners replaced aging trucks.

Ford also continues to attract higher prices per vehicle than it did last year, in part because of new model launches and wider availability of expensive options.

In Europe, revenue rebounded in the first quarter on an increase in volume and a boost in net pricing. Ford reported a first-quarter operating profit in Europe of $293 million compared to $107 million in the year-ago period.

Ford Credit posted a first-quarter pretax operating profit of $713 million, down $115 million from a year earlier due to lower market valuation adjustments to derivatives and lower outstanding loans.Debt reduction

Ford said it ended the first quarter with automotive gross cash of $21.3 billion, up $800 million from the end of 2010. Ford reduced debt in the first quarter by $2.5 billion during the latest period, leaving it with $16.6 billion in debt.

The automaker – which is seeking an investment-grade credit rating -- is expected to continue paring debt in the coming quarters as well.

Ford expects 2011 capital expenditures in the range of $5 billion to $5.5 billion. Capital spending in the first quarter was $900 million.

Ford executives remain optimistic about 2011 and expect the automaker's profits and cash flow to improve as additional new models, namely the Focus compact, come on line.

The automaker is not making any adjustments to its North American production plans and expects second quarter output to be about 1.5 million units, up 12,000 units from a year ago.

That reflects strong customer demand for new products, Ford said. The automaker added that its production forecast reflects Ford's best estimates of the impact of Japan's March 11 earthquake at this time.

Analysts say Ford may benefit from inventory shortages at Toyota Motor Corp. and other Japanese automakers following the earthquake.

“We estimate Toyota's production will be cut by more than 50 percent, which creates a share gain and pricing opportunity for Ford,” Brian Johnson, an analyst with Barclays Capital, said in a recent report. “Ford has better cars and better price points on their product line” than during the last fuel price surge in 2008.

Still, Ford and other automakers are facing higher costs for oil and other commodities.

Ford raised U.S. vehicle prices by an average of $117 per model on April 1 to counter some of the increase in material costs.

With the elimination of Mercury and sale of Volvo last year, Ford is now a two-brand automaker in the U.S. market.

At the Ford brand, which has captured some previous Mercury owners, 2011 sales are up 25 percent through March. In the first quarter, demand for the Ford Fusion jumped 27 percent and sales of the new Ford Fiesta subcompact totaled more than 20,000.

But Lincoln is skidding, with sales off 11 percent this year.

Booth credited Ford's results to new products, such as the Fiesta and redesigned Explorer crossover, and to keeping production in line with demand. That has forced Ford to be disciplined on incentive spending in all regions.

Booth said Ford should have a better year this year versus last year, “both in terms of profitability and cash flow.”

Booth said the rebound in European profits reflects continued cost controls along with new products such as the C-Max and Fiesta small cars.

Ford estimates commodity costs will increase by about $2 billion this year. In the first quarter, Ford's structural costs increased $400 million from the year-earlier level, and commodity costs increased $300 million.

Booth said 97 percent of Ford's Mercury dealers have signed agreements to close down their franchise. Ford took $339 million in charges last year to shutter the brand. In the first quarter, Ford reported $1 million in charges to eliminate the Mercury brand.

The automaker has moved up scheduled plant downtime around the world to offset any impact from Japan's earthquake last month, Booth said.

Ford recently idled several plants in the Asia-Pacific region to conserve parts. Booth said Ford has lost 12,000 to 14,000 units so far in the second quarter due to reduction in overtime in those Asia-Pacific plants, temporary shutdowns and “other actions” in that region.

Ford might lose more units, but it will not be a “material” loss, Booth said.

“We're seeing fantastic efforts by the Japanese supply base to get their plants up and running,” Booth added.

By Jamie LaReau- Automotive News