Ford back in the black, although weaker 4th Quarter

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http://www.autonews.com/apps/pbcs.dl...110129842/1424
Ford's 2010 net is best in a decade; Q4 drops on actions to cut debt
Jamie LaReau

DETROIT -- Ford Motor Co. today posted a $6.56 billion profit for 2010, its highest annual net income in more than a decade, fueled by improved products and pricing.

But its fourth-quarter profit plunged, due to actions to pay down debt that Ford took on before the financial crisis hit. The automaker also confronted rising costs for launching new vehicles and suffered an unexpected loss in Europe.

“We're in transition mode now,” Ford CFO Lewis Booth said during a media briefing today, predicting that 2011 will be more profitable than 2010. “We've fixed the fundamentals of the business. I think the thing that pleases us immensely is the improvement in the balance sheet.”

Booth said the results fell short of analysts' expectations because an increase in structural costs was not reflected in most analysts' estimates.

Booth said those structural costs included the increased costs for product launches, higher engineering expenses and rising marketing costs as Ford launched new and redesigned products.

Fourth-quarter net income was $190 million, the seventh straight quarter of black ink, down from $886 million a year earlier. Not counting special charges, including a $960 million charge tied to a payment to convertible debt investors, Ford earned $1.2 billion. The payment helped reduce Ford's automotive debt by more than $1.9 billion.

European operations reported a $51 million loss, missing the company's expectations, because of lower market share and higher costs.

Cash, debt

The automaker finished the year net cash positive for the first time since the second quarter of 2008.

Ford ended the year with $20.5 billion in gross cash while reducing debt to $19.1 billion. It has $7.4 billion in liquidity left on a revolver loan.

Ford reduced its automotive debt by $14.5 billion in 2010, a 43 percent reduction. As a result, Ford says it has lowered its annualized interest expense by more than $1 billion.

Booth said Ford will continue to take actions to improve its balance sheet with the intention to reach an investment-grade rating, a status it lost in 2005.

“As you approach investment grade, you see the spreads on your borrowing costs improve,” Booth said. “We're seeing the benefit now from the improved balance sheet and our improved business.”

Ford also raised its first-quarter North American production plan by 15,000 units to 650,000.

Regional results

During the fourth quarter, Ford's automotive revenue in North America grew by $1.6 billion to $17.2 billion. North America posted a pretax operating profit of $670 million in the period, up $59 million from a year earlier. For the full year, North America swung to a pretax operating profit of $5.4 billion from a loss of $639 million in 2009.

Ford reported a $253 million profit from Europe in the fourth quarter a year earlier. In December, the automaker's European sales dropped 23 percent as other manufacturers offered rebates to lure buyers.

The European market “was incredibly competitive in the fourth quarter,” Booth said. Ford lost share in Europe in the quarter.

“We're not going to chase market share,” Booth said, emphasizing that Ford held the line on pricing rather than putting high incentives on vehicles to pump up sales.

For 2010, Ford in Europe had a pretax operating profit of $182 million, swinging from a loss of $144 million in 2009.

Europe's full-year profit was topped by that of Asia Pacific Africa, which posted pretax operating profit of $189 million in 2010, compared with a loss of $86 million in 2009. In the fourth quarter, Asia Pacific Africa's profit was $23 million, up from $16 million a year earlier.

In August, Ford sold its Volvo Cars unit to China's Zhejiang Geely Holding Co. In 2009, Volvo had revenue of $12.4 billion, Ford said.

For 2011, Ford expects each of its automotive operations to be profitable. Additionally, Ford's global operating margin in 2011 is expected to be equal to or improved from 2010, the automaker said.

Worldwide, Ford earned $741 million on its core automotive operations during the fourth quarter, compared with $914 million a year earlier.

Ford's 2010 revenue rose to $120.9 billion from the $116.3 billion recorded in 2009. The automaker excluded revenue from Volvo, which was sold in August, in both figures.

Second straight black-ink year

The results marked the second straight annual profit for CEO Alan Mulally, who has shed brands and put a global focus on the Ford marque while establishing the automaker as a leader in in-car information technology. In 2009, Ford ended three years of losses by earning $2.72 billion.

“Our 2010 results exceeded our expectations, accelerating our transition from fixing the business fundamentals to delivering profitable growth for all,” Mulally said in a statement. “We are investing in an unprecedented amount of products, technology and growth in all regions of the world.”

Ford says it plans to deliver “continued improvement in pre-tax operating profit and automotive operating-related cash flow” in 2011. Last year's profit was the highest since the $7.2 billion netted in 1999.

Ford credits its 2010 gains to improved vehicle quality, new product launches such as the Fiesta subcompact and aggressively restructuring the business to reduce costs and improve global operations through new investments in global markets.

“For Ford, 2010 was a breakout year in terms of customer perceptions of their design and quality,” said Adam Jonas, an analyst with Morgan Stanley in New York, said before today's results were announced.

More cash than debt is a good sign.