Ford Efforts Gain Traction

Shares jump after the automaker improves its bottom line, though North American sales remain weak.
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Updated from 12:36 p.m. EDT

Ford

(F) - Get Report

shares got a jump-start Thursday after the automaker posted a big improvement on its first-quarter bottom line, beating estimates on Wall Street despite further weakness at its core automotive business in North America.

Revenue gains from overseas markets, coupled with heavy cost-cutting from the company's restructuring efforts, helped boost the performance, and new CEO Alan Mulally said on a conference call following the release that its overall loss for 2007 will be "sharply improved from a year ago."

Shares of Ford recently were up 30 cents, or 3.8%, to $8.18.

Ford recorded a first-quarter loss of $282 million, or 15 cents a share, narrowed from a loss of $1.4 billion, or 76 cents a share, in the same quarter last year.

Excluding one-time charges, mostly from its restructuring plan known as "Way Forward," Ford would have lost $171 million, or 9 cents a share, for the quarter, compared with last year's operating profit of $223 million, or 12 cents a share.

By that measure, Ford's financial performance remains in decline, but the company handily beat expectations on Wall Street for a loss of 60 cents a share, according to Thomson First Call analysts' consensus estimate.

Morningstar analyst John Novak noted that Ford ended the quarter with a cash balance of $35.2 billion, up slightly from where it stood at the end of 2006. The increase benefited from $2 billion in tax refunds and other special items, suggesting that the company is still burning cash.

"This sizable cash hoard eliminates any near-term concerns about the company's viability, but over the long term, Ford must stabilize its market share and lower its cost structure if it is going to survive," said Novak in a report.

Ford's revenue for the quarter rose 5.4% to $43 billion. Worldwide automotive revenue, which excludes Ford's finance arm, climbed 4.3% to $38.6 billion, beating Wall Street's forecast for automotive revenue of $34.45 billion.

In North America, however, Ford continued to lose market share to low-cost competitors, and its financial performance suffered. Its retail market share in the region fell 70 basis points in the quarter to 10.1%.

Meanwhile, the North American business reported a pretax loss of $614 million, widened from last year's loss of $442 million. Sales fell by $1.6 billion to $18.2 billion.

"The drop in share is noteworthy since it ultimately indicates how far and fast the company must shrink if it is to return profitability," Novak said.

On the conference call, Mulally attributed weakness in North America, in part, to higher commodity prices and the economic effects of the U.S. housing market's meltdown. He also named economic conditions in the U.S. as a chief concern for the company in 2007.

Ford cut 18,000 jobs in North America during the quarter with its employee buyout offers, saving about $500 million in costs. It also took heavy charges from the buyouts, and its interest expense was higher due to last year's financing moves, in which Ford raised $18 billion in cash by putting up its U.S. auto plants and substantially all of its other domestic automotive assets and intellectual property as collateral.

Internationally, Ford's pretax profit at its European business that more than doubled to $219 million, while sales rose 26% to $8.6 billion, helped by favorable currency exchange.

First-quarter revenue at its South American operations climbed 8% to $1.3 billion, but its pretax profit fell 17% to $113 million. Sales at Ford's Asia Pacific and Africa division rose 6% to $1.8 billion, but the division swung to a pretax loss of $26 million from last year's profit of $2 million.

Strength also came from Ford's Premier Automotive Group, which includes luxury brands like Jaguar and Land Rover. The group's sales rose 18% to $8.4 billion, while its pretax profit jumped to $402 million from $152 million.

Ford Credit, the company's finance arm, recorded a net income decline to $193 million from last year's $248 million, due to higher borrowing costs.

Mulally declined to provide a time frame for stabilizing Ford's revenue declines in North America. He said the company will be overhauling its product portfolio to be more competitive in 2008, and its entire line will be "refreshed and updated" in 2009, the year in which the company expects to return to profitability.

For the current quarter, Ford raised its North American production target to 810,000 vehicles from its previous forecast of 770,000 vehicles.

"We are making progress on executing the four priorities of our plan -- restructuring the company, accelerating product development, funding our plan and working effectively as one team," Mulally said. "Our first-quarter results came in somewhat stronger than expected, but there are many uncertainties going forward."