Sypris Solutions ( SYPR) warned Tuesday that it expects a third-quarter loss as a result of cutbacks at big customer Ford ( F).

The Louisville, Ky., technology outsourcer expects to lose 4 or 5 cents a share for the quarter on sales of about $126 million. Earlier, the company had expected to make 3 to 6 cents a share on revenue of about $140 million.

Free cash flow is expected to be $9 to $11 million, exceeding prior guidance of $0 to $5 million.

"Our Industrial Group experienced a 39% reduction in orders for component shipments to the Ford Motor company during the third quarter, the result of which had a material impact on the company's revenue and income for the period," said CEO Jeffrey T. Gill. "Unfortunately, the rightsizing of our workforces in each of the plants impacted by the change required much of the quarter to complete, further compressing the group's short-term margins. The outlook for the balance of the year appears to be stable for the moment." Gill continued, "The lower than expected revenue and margins for the quarter were also driven by our Electronics Group, which generated lower sales primarily due to a reduction in the initial rate of production for the launch of a new classified program. The short-term change in schedules was necessitated to incorporate several new important design modifications earlier in the product's life cycle. We now expect to reach full rates of production early in 2007."

"Despite these headwinds, the company continued to generate significant free cash flow of approximately $10 million, resulting in $35 million of free cash flow on a year to date basis. As a result, the company's balance sheet remains a source of strength, with net debt representing less than 14% of total capital. As we go forward, we will continue to evaluate opportunities to use this strength to improve margins and increase the company's market share."

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