Ford Shows Slow Improvement

The automaker halves its loss but acknowledges that more weakness is ahead.
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Updated from 9:25 a.m. EST


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improved its financial position in the fourth quarter, but its auto business continued to struggle in North America and the company acknowledged that the economic outlook in 2008 is challenging.

The automaker halved its fourth-quarter loss but remained deep in the red as an impairment charge slammed the bottom line. It recorded a loss of $2.75 billion, or $1.30 a share, compared with a loss of $5.63 billion, or $2.98 a share, for the same quarter last year.

The results included special charges totaling $3.9 billion, or $1.10 a share, including a $2.4 billion pretax asset impairment tied to its Volvo division.

"Although our automotive operations are improving on a year-over-year basis, the U.S. economy is slowing and the outlook for the auto industry remains challenging," said CEO Alan Mulally.

Ford's fourth-quarter loss from continuing operations, excluding special items, was $429 million, or 20 cents a share, compared with last year's loss on that basis of $2 billion, or $1.03 per share. That result was in line with Wall Street's expectations, but shares retreated Thursday as investors fretted about continued weakness in North America.

Shares of Ford recently were trading down 16 cents, or 2.5%, to $6.14.

"I was disappointed in the results from North America," says Burnham Securities analyst David Healy. "The numbers improved year to year but they deteriorated more than I expected from quarter to quarter. Ford is going along more or less in line with their plan, but they're fighting lower industry sales and lower market share."

In its key North America division, Ford's losses narrowed to $1.6 billion in the quarter from last year's $2.7 billion, while revenue was $17 billion, up from $15.1 billion. The company attributed the improvements to higher net pricing, and better volume and mix, partially offset by higher costs and unfavorable changes in currency exchange rates.

"Ford's North America retail share continues to shrink year-over-year," wrote Bear Stearns analyst Peter Nesvold in a note to clients. "While not a major surprise, it's one of the few areas of

Ford's restructuring plan that appears to be tracking behind plan. Nonetheless, we believe management to date has been willing to trade volume for pricing."

Ford has spent the past year and a half slashing costs and overhauling its business in an effort to stem losses at its North America division. The company has been hurt by overwhelming cost burdens as well as rising competition from foreign companies like


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, which in 2007 surpassed Ford to become the No. 2 U.S. automaker.

Against this backdrop, the company will expand its cost cuts, including a new round of buyouts with the United Auto Workers union.

Ford said it expects its 2008 automotive business to be equal to or better than 2007, though it still expects to be in the red.

For the fourth quarter, Ford's worldwide auto business logged a pretax loss of $889 million, narrowed from last year's loss of $2.3 billion. Revenue totaled $40.8 billion, up from $36 billion a year ago. Its overseas divisions all showed improved profitability.

Earnings from Ford's finance arm dropped to $186 million in the quarter from, down from last year's $279 million. The company attributed the slide to the "non-recurrence of credit loss reserve reductions," hinting that credit quality in its portfolio is deteriorating.

Nesvold noted that Ford's total auto-related operating cash outflow was $1.2 billion, leaving $34.6 billion in gross cash at year's end.

"We believe this is more than sufficient to fund Ford's operating losses until North America turns profitable," Nesvold wrote.

Calyon Securities analyst Mark Warnsman says Ford's shares are currently trading based on economic worries rather than the company's underlying performance.

"The company is on plan and overall its performance in 2007 was better than anticipated, particularly from a cash flow perspective," he says.