DETROIT -- Shares of Ford Motor Co. fell nearly 5 percent on Wednesday after the automaker lowered its 2005 profit outlook for the second time in two months and said it would cut about 1,700 jobs as it faces weak U.S. vehicle sales.
The latest earnings warning follows a 12-month decline in Ford's U.S. vehicle sales and comes as Detroit's automakers, led by struggling General Motors, are trying to tackle some of their biggest challenges in decades, including mushrooming health-care and raw material costs, and increased competition from Asian automakers.
Ford, which cut its full-year profit after the market closed on Tuesday, said it now expects to earn $1 to $1.25 per share, excluding items, down from a previous forecast of $1.25 to $1.50 per share.
The second-largest U.S. automaker also said it was planning to slash about 5 percent of salaried jobs in North America, eliminate 2005 bonuses for salaried managers worldwide, and suspend matching pension fund (401k) grants for salaried workers.
The announcement prompted ratings agency Standard & Poor's to warn that Ford's debt rating, which it last month lowered to non-investment grade status, or "junk," could be cut further.
"We believe there is now an increased likelihood that the ratings ... will ultimately be downgraded further," S&P said in a statement on Wednesday.
Moody's Investors Service on Wednesday said it may cut Ford's debt ratings to junk status, citing the company's earnings warning. A downgrade would cement Ford's status as a junk credit and leave the company with fewer avenues for raising money.
Moody's said it may cut Ford's long-term debt rating, now "Baa3," the lowest investment-grade level. The rating agency said it may also cut Ford Motor Credit Co.'s long-term rating, now "Baa2," two steps above junk status.
Ford shares were down 48 cents, or 4.3 percent, at $10.68, in afternoon trading on the New York Stock Exchange, up from an earlier low of $10.64.
The company's bonds also weakened against Treasuries. The spread or extra yield on Ford bonds with a 7 percent coupon due in 2013 widened by 0.33 percentage points to 3.71 percentage points after the warning late on Tuesday, according to MarketAxess.
Calyon Securities analyst Joseph Amaturo said the current outlook suggests minimal, if any, earnings in the second half of the year, since along with the full-year warning late on Tuesday, Ford also raised its second-quarter outlook to a range of 30 to 35 cents per share, citing strength in its finance arm and a lower tax rate.
The company's steady financial gains under the leadership of Chairman Bill Ford Jr., leading to a $3.49 billion profit in 2004 from a $5.45 billion loss in 2001, appear to be on a reverse course.
Less than three months after he took the helm in late 2001, the Ford family scion launched an ambitious turnaround plan that included a goal of $7 billion in annual pre-tax profit. He scuttled that target in April, shortly before Ford reported a 38 percent drop in its first-quarter earnings.
The automaker had said in January that it expected to earn up to $1.95 per share this year, but the April warning slashed that outlook by at least 14 percent.
Ford Motor Co.'s U.S. market share through May this year stands at 18.1 percent, down from 19.1 percent in the same period a year ago, according to the Automotive News Data Center.
"We estimate that Ford's U.S. market share will fall by more than any other (automaker) in the medium term," Prudential Equity Group analyst Mike Bruynesteyn said in a research note.
Both Ford and GM have been reeling this year from a dramatic slowdown in sales of their mid- and large-sized sport-utility vehicles.
The fuel-thirsty SUVs, former profit engines for Detroit's automakers, are losing their popularity in the U.S. market as consumer sentiment shifts in the face of record-high oil prices.