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Ford's surprising profits

Ford Motor (F) Chief Executive Officer Alan Mulally has from time to time over his 19 months at the helm of the ailing automaker said he prefers to underpromise and overdeliver on results. He did just that Apr. 24, posting a $100 million profit in the first quarter, much better than the loss Wall Street expected and a nearly $400 million swing in net earnings from the same period the year before.

The results were impressive considering the recessionary climate in the U.S., which is depressing auto sales overall; high gas costs that are pushing down demand for Ford's most profitable pickup trucks and SUVs; and rising costs of commodities used to make vehicles.

Ford's automotive operations earned a pretax profit of $669 million, compared with a loss of $895 million the previous year. Its results in Europe, South America, and Asia went a long way to offset the continued losses in North America. The Volvo unit lost $151 million.
Global Assets

Ford also said its Ford Motor Credit Co. reported net income of $24 million in the first quarter, down from $193 million the year before, mainly reflecting a higher provision for credit losses, depreciation on leased vehicles, and higher net losses related to market valuation adjustments from derivatives.

Speaking on the results outside the U.S., Mulally said: "In the past several years, we have substantially restructured these businesses." He added: "We believe this is an indication that our efforts to leverage Ford's global assets across the world will bear fruit. Going forward, we remain committed to our key business objectives, including our goal of reaching North America and overall automotive profitability in 2009 despite the challenging economic conditions."

Ford expects to lose money this year on the whole, but far less than the $2.7 billion it lost in 2007. Mulally said that despite the worsening economic environment in the U.S., Ford's toughest nut to crack, he is sticking to his goal of overall profitability in 2009.
Surprise Results

Goldman Sachs (GS) analyst Patrick Archambault said in an investors note that Ford's North American results were much better than expected, a $45 million pretax loss, vs. the $1.1 billion the investment firm anticipated. "This comes as a significant surprise to us," said Archambault.

Mulally said that most facets of the company's recovery were on track, including the reduction of costs—$5 billion in annual ongoing structural costs between 2007 and 2009—as well as the company's cash burn. Ford cut $1.2 billion in costs in the first quarter. Ford closed the quarter with $28.7 billion in cash, having burned $5.9 billion in the first three months of the year.

To shrink its workforce and cut costs, Ford has offered buyouts to its 54,000 United Auto Workers-represented employees and will offer only targeted buyouts by plant and vehicle from this point. It did not give a target for the earlier plan or the new targeted buyouts, though the take rate by employees is known to be less than what Ford had hoped. "It's really an issue of cutting their way close to profitability in North America," Argus Research analyst Kevin Tynan said. "That, as time goes by, gets harder and harder to do."