Ford posts Q4 profit, forecasts operating profit for 2010
Mulally: "Forging a path toward profitable growth."
Photo credit: JOE WILSSENS
The results showed continued progress in CEO Alan Mulally's recovery efforts in the face of the weakest U.S. sales in 27 years.
Ford has confidence in its restructuring plan, but it remains "a work in progress and is far from complete," Mulally said on a conference call.
"The economy remains soft in many areas of the world, and the global auto industry continues to wrestle with excess vehicle capacity, volatile commodity prices and a fragile supply base," said Mulally, whose internal battles include a debt-heavy balance sheet.
Ford reported fourth-quarter net income of $868 million compared with a loss of $5.9 billion a year earlier. Revenue rose to $35.4 billion from $29 billion. Ford snapped a three-year streak of losses by recording a net profit of $2.7 billion for 2009 compared with a loss of $14.8 billion in 2008. Last year's results were aided by large gains from debt-reduction efforts and other items.
Ford's operating profit, after taxes, for the fourth quarter was $1.6 billion compared with a loss of $3.3 billion a year ago. For the year, Ford's operating profit was $8 million compared with a loss of $7.3 billion a year earlier.
"We're going to be profitable in 2010,'' said CFO Lewis Booth, issuing the automaker's first forecast for the year. Three months ago, Ford changed its 2011 outlook to “solidly profitable” from “breakeven or better.”
Booth reiterated the “solidly profitable” plan today.
Ford posted losses totaling $30 billion from 2006 through 2008.
Ford also is raising production in the first quarter in North America by 20,000 units to 570,000 units from previously announced 550,000 units.
Booth told reporters today that Ford's 2009 profit was largely influenced by debt restructuring. Ford also cut its automotive structural costs by $500 million in the fourth quarter and by $5.1 billion for the year, surpassing its full-year goal of $4 billion. That was driven largely by lower manufacturing and engineering costs as well as job cuts.
Ford reported $3.1 billion of positive cash flow in the fourth quarter from automotive operations, finishing the year with $25.5 billion in automotive gross cash.
With a positive cash flow in the second half of 2009, Ford's total cash burn was $300 million for the year, compared with $19.5 billion in 2008. Ford expects positive cash flow in 2010.
“We're encouraged by our cash position,” Booth said. “We are also seeing the benefit of our production being ramped up again.”
Booth said Ford faces the challenge this year of keeping inventory levels flat while increasing production in the United States. Ford brands now have about a 60-day supply, considered the industry ideal.
In North America, Ford posted a pre-tax operating profit in the fourth quarter of $707 million vs. a loss of $1.9 billion in the same period of 2008. Fourth-quarter revenue rose to $15.8 billion from $11.3 billion.
Ford reported profits in its operations around the world. In South America, Ford had a pre-tax operating profit of $369 million, up from a profit of $105 million a year earlier.
In Europe, Ford's pre-tax operating profit of $305 million compared with a loss of $338 million in the fourth quarter of 2008. The boost was due to reduced material costs, higher volumes, strong net pricing and lower structural costs. Ford also benefited from Europe's scrappage programs, which provided government incentives to buyers of small cars.
Ford's Asia-Pacific-Africa region had a fourth-quarter pre-tax operating profit of $19 million vs. a loss of $208 million a year earlier. Ford said the gain stemmed from favorable net pricing, profits from Ford's joint ventures in China and reductions in structural costs.
Ford's results come as rival Toyota Motor Corp. is mired in a crisis over faulty accelerator pedals that have led to a massive recall of top-selling vehicles and the temporary suspension of production and sales.
Ford shares have reflected a surge in investor expectations. The stock has jumped sixfold in a year from under $2 to nearly $12 today.
Ford's heavy debt load has left it at a disadvantage to rivals General Motors Co. and Chrysler Group, whose balance sheets were cleansed in government-sponsored bankruptcies in 2009. But the stigma of those bankruptcies likely helped Ford gain market share from those rivals, analysts said.
With Ford's product development plans on track, uncertainties surround whether the U.S. economy and auto sales will show a gradual recovery and how quickly Ford can address its debt issues.
“We have an uncompetitive balance sheet,” Booth said. “The most important thing is to return the business to fundamental health and pay down our debt.”
The automaker borrowed more than $23 billion in late 2006, two months after Mulally joined Ford from Boeing Co., to finance restructuring plans in what the CEO often refers to as Ford's “home improvement loan.”
Ford said it ended the year with total automotive debt of $34.3 billion, up from $26.9 billion at the end of the third quarter mainly due to contributions to the retiree health-care plan for the UAW.
As a result of its full-year profit, the automaker plans to pay profit-sharing of about $450 each to its 43,000 eligible UAW workers in the United States. It will be the first profit-sharing payment to UAW workers since 2004.
Ford previously announced that it also would pay merit increases for U.S. salaried workers.
Ford's U.S. sales fell 16 percent in 2009, less than the U.S. auto industry drop of 21 percent, to 10.4 million vehicles, the lowest total since 1981. Ford gained 1 percentage point of U.S. market share to 16.1percent, its first advance in its home market since 1995.
“If there is any kind of recovery, they should be profitable in 2010,” Autoconomy analyst Erich Merkle said before today's results were released. “I think Ford is looking to underpromise and overdeliver.”
Booth today suggested that the extent of Ford's comeback is beyond its control.
"The single most important thing is to see the economic recovery ... continue," he said. "We are worried about how fragile that may be."
Reuters contributed to this report.
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