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Ford CEO Says Return to Profit Is 'Encouraging Sign' of Plan Success

Ford Motor Chief Executive Alan Mulally told CNBC Thursday that the company's latest results are an encouraging sign that its restructuring plan will help return the company return to profitability.

"I'm really not surprised at all," Mullally said. "I'm very encouraged that the plan we put in place is working."

"We are ahead of that plan, which is very, very gratifying for everybody," he said.

Earlier Thursday, Ford posted its first profit in two years, signaling a turnaround in its auto business, helped by cost-cutting at its troubled U.S. operations. The results, which solidly outpaced analyst estimates, sent Ford shares up more than 3%.

Ford also confirmed it is exploring a sale of its Jaguar and Land Rover luxury units, a spin-off Ford executives said they now view as probable.

The No. 2 U.S. automaker further said it is conducting a strategic review of its Swedish luxury nameplate Volvo -- widely considered Ford's most valuable luxury brand -- that it expects to conclude by the end of the year.

Mulally told CNBC that the latest results benefited from both a 6% increase in revenue, but also the actions it is taking to "aggressively restructure the business."

During a conference call with analysts, Mulally said Ford expects a "difficult" second half and negative cash flow as it pushes ahead with closing 16 plants and cutting up to 45,000 jobs in a sweeping restructuring. However, he expects the company will return to profitability by 2009, and it improved its outlook for this year.

Analysts said the second-quarter results point to faster-than-expected improvement for Ford in the U.S. market, but some said weaker results for Ford's finance arm and the potential sale of its full portfolio of luxury brands raises questions about future earnings potential.

"It's certainly an improvement, but there are still a couple of areas of concern, particularly North America," said analyst Kevin Tynan of Argus Research. "Any additional cost-cutting and its effect on North America is only going to get more difficult."

Ford shares were up 3.26 percent, or 26 cents, at $8.23 in late morning trade on the New York Stock Exchange. In the past 52 weeks, the shares have traded in a range of $9.70 to $6.36.

Suprising The Street

Ford posted a net profit of $750 million, or 31 cents per share, compared with a loss of $317 million, or 17 cents, a year earlier.

Profit from continuing operations, excluding one-time items, was 13 cents per share, well past the average Wall Street forecast for a loss of 37 cents per share, according to Reuters Estimates.

The positive results marked the first profit for Ford since the second quarter of 2005 and its first auto-related profit since the first quarter of 2005.

Ford
Paul Sancya
Ford

In an update on its turnaround, Ford said it is on track to have a lower cash outflow due to its restructuring than the $17 billion it had previously forecast for the period 2007 through 2009. reflecting slightly lower restructuring costs and better operating results.

Ford now expects its total cash outflow through 2009 in the range of $15 billion to $16 billion, Ford Chief Financial Officer Don Leclair said.

But the results could complicate Ford's contract talks with the United Auto Workers union that formally began this week.

Ford is seeking sweeping concessions to bring its labor costs in line with Japanese automakers operating in the United States.

Mulally said that while union concessions on retiree health care and work rules contributed to its gains, Ford needs to show further progress.

"We still have a long way to go to be fully competitive," he said on a conference call with analysts.

Tynan of Argus Research said Ford's negotiators could point to the continuing weakness in the company's home market in talks with the UAW.

"The company could make the case that we are still not profitable in North America, and we need more," he said.

Auto Business Improves

Dearborn, Michigan-based Ford, which has seen some recent sales success for its new crossover models like the Ford Edge and has won quality accolades, said second-quarter revenue rose to $44.2 billion from $41.9 billion a year earlier.

Ford's auto operations swung to a profit of $378 million before taxes and excluding special charges, while finance arm Ford Motor Credit contributed a net profit of $62 million.

The Ford Motor Credit profit was down sharply from $242 million a year earlier, reflecting higher borrowing costs and lease expenses and a more cautious stance on credit loss reserves.

In North America, Ford's loss narrowed to $279 million during the quarter before taxes and excluding special items.

JP Morgan analyst Himanshu Patel said much of the turnaround reflected higher production of Ford's high-margin F-Series Super Duty work trucks.

"We continue to like Ford (and) GM (General Motors) medium-term on (the) labor restructuring opportunity," he said in a note to clients.

Bear Stearns analyst Peter Nesvold said Ford's progress since Mulally left Boeing last year to take over the CEO post at Ford has been "encouraging," noting that the automaker has topped Wall Street cash-flow projections for three consecutive quarters.

Ford said special items contributed $443 million to its second-quarter pretax results, including $206 million from the sale of its Aston Martin unit.

Ford also said it cut costs by $600 million in the second quarter and $1.1 billion through the first half on reduced warranty costs, lower costs for retiree health care and a smaller payroll.

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