Ford posts Q3 net income of $1.7 billion, announces additional debt-reduction actions

Ford Motor Company

Ford Motor Company on October 26 reported third quarter net income of $1.7 billion, or 43 cents per share, a $690 million improvement from third quarter 2009, as strong products, momentum in North America and continued success at Ford Credit fueled growth amid still-challenging business conditions.

Excluding special items, Ford reported a pre-tax operating profit of $2.1 billion, or 48 cents per share, an improvement of $1.1 billion from a year ago. Ford has posted pre-tax operating profits for five consecutive quarters.

Ford’s third quarter revenue was $29 billion, a decline of $1.3 billion from the same period a year ago. Excluding Volvo revenue from 2009, Ford’s revenue in the third quarter was up $1.7 billion compared with the same period a year ago.

Ford North America posted a third quarter pre-tax operating profit of $1.6 billion, a $1.3 billion improvement from third quarter 2009. The company is on track to gain full-year market share in the U.S. for the second straight year, marking the first time since 1993 that Ford has achieved consecutive annual increases.

Ford also announced Automotive debt reduction actions to strengthen the balance sheet, including further paying down its revolving credit line by $2 billion in the third quarter; prepayment of the remaining $3.6 billion of debt owed to the VEBA retiree health care trust by the end of October; and conversion offers on two convertible debt securities in the fourth quarter.

“This was another strong quarter and we continue to gain momentum with our One Ford plan,” said Ford president and CEO Alan Mulally. “Delivering world-class products and aggressively restructuring our business has enabled us to profitably grow even at low industry volumes in key regions.

“The key drivers for improvement in 2011 will be our growing product strength, a gradually strengthening economy and an unrelenting focus on improving the competitiveness of all our operations,” Mulally added.  

Automotive operating-related cash flow was $900 million positive in the third quarter, primarily reflecting pre-tax operating profits. Ford finished the third quarter with $23.8 billion in Automotive gross cash, an increase of $1.9 billion since the second quarter. Including available credit lines, total Automotive liquidity was $29.4 billion at the end of the quarter.

The $2 billion revolver payment, made on September 9, lowers Ford’s interest expense without impacting its overall liquidity. As of September 30, Ford’s total Automotive debt was $26.4 billion.

On Friday, Ford will use cash to fully prepay the remaining $3.6 billion of debt it owes the VEBA retiree health care trust. This will lower ongoing annual interest expense by about $330 million. Including the VEBA payment in the fourth quarter, Ford will have reduced its total Automotive debt by $10.8 billion from year-end 2009, which will decrease its ongoing annual interest expense by about $800 million.

In addition, Ford has launched conversion offers for its senior convertible debt securities, of which $3.5 billion is outstanding and $2.6 billion is carried as debt on its Sept. 30, 2010 balance sheet. Holders will be offered a cash premium as an inducement for them to convert the debt into shares of Ford common stock.

Ford’s debt and interest expense will be reduced to the extent holders elect to accept the conversion offers. Completion of the conversion offers, however, will result in fourth quarter special items charges associated with the cash premium and the non-cash loss related to the debt retirement. Any shares issued under these conversion offers are already reflected in Ford’s fully diluted earnings per share calculation.

Even without the benefit of these conversion offers, Ford now expects its Automotive cash to be about equal to its debt by year end, earlier than previously expected. This will be an improvement of $8 billion to $9 billion from the end of last year.

“Our performance through the first nine months has clearly exceeded our initial expectations and is enabling us to make additional significant balance sheet improvements in the fourth quarter,” said Lewis Booth, Ford executive vice president and chief financial officer. “We are now in a period where we are focusing on growing the business profitably around the world following the hard work that has been done by the entire Ford team to fix the fundamentals of the business.”

THIRD QUARTER 2010 HIGHLIGHTS

  • Announced plan with joint venture partners in China to invest $500 million for a new engine plant in Chongqing that will more than double capacity
  • Announced Ford and Mazda will invest $350 million in the AutoAlliance Thailand joint venture compact pickup plant in Thailand
  • Announced plan to launch eight new vehicles in India by mid-decade and export Ford Figo from India to 50 markets
  • As a result of competitive agreements at several U.S. plants, Ford is bringing in-house approximately 2,000 hourly jobs
  • Completed sale of Volvo Car Corporation to Zhejiang Geely Holding Group as the company continues to implement its One Ford plan
  • Continued actions to reduce debt by paying down $2 billion of the drawn amount of the revolving credit line
  • Revealed the full family of Focus body styles at the Paris Motor Show, including the global Focus ST, and SYNC for Europe. The new Focus will roll out in North America, Europe and Asia Pacific Africa starting next year
  • The new Ford Edge and Lincoln MKX went on sale in North America with MyFord Touch and MyLincoln Touch technology
  • Launched sales of the Fiesta in Thailand in September as Ford continued introducing the vehicle across Asia and the Americas
  • Unveiled reinvented Explorer SUV with more than 30 percent fuel economy improvement over current model.  Explorer will go on sale in North America later this year
  • Announced new family of F-150 powertrains that will deliver improved fuel economy and capability
  • Launched sale of all-new C-MAX and freshened Mondeo in Europe
  • 2010 U.S. model lineup earned eight Top Safety Picks from the Insurance Institute for Highway Safety.  Ford has the most Top Safety Picks of any automaker
  • Reported a 9 percent sales increase in the U.S. and gained 1.3 percentage points of market share, including strong performances from F-Series, Taurus, Fiesta and Edge
  • Ford of Canada continued to maintain leadership in the market, posting a 2.3 percentage point market share increase and its best September performance in more than 30 years
  • Posted a 28 percent sales increase in Asia Pacific Africa, including a 14 percent increase in China led by Fiesta demand and a 190 percent increase in India led by sales of the new Ford Figo

AUTOMOTIVE SECTOR

For the third quarter of 2010, Ford’s worldwide Automotive sector reported a pre-tax operating profit of $1.3 billion, compared with a profit of $341 million a year ago. The improvement primarily reflects favorable volume and mix, net pricing and exchange, offset partially by higher costs, including higher structural costs to support volume and growth of product plans and higher commodity costs.

Compared with a profit of $2.1 billion in the second quarter of 2010, Automotive sector pre-tax operating profit decreased by $800 million, explained primarily by lower volume and unfavorable exchange, offset partially by favorable net pricing and lower net interest expense as a result of Ford's debt reduction actions.

Total vehicle wholesales in the third quarter were 1.3 million units. Excluding Volvo from 2009, the wholesale increase was 91,000 units. Worldwide Automotive revenue in the third quarter was $26.7 billion, down from $27.3 billion a year ago. Excluding Volvo from 2009, Automotive revenue increased by $2.4 billion.

North America: For the third quarter, Ford North America reported a pre-tax operating profit of $1.6 billion, compared with a profit of $314 million a year ago. The year-over-year increase was explained primarily by favorable volume and mix and net pricing. Third quarter revenue was $16.2 billion, up from $13.4 billion a year ago.

South America: For the third quarter, Ford South America reported a pre-tax operating profit of $241 million, compared with a profit of $247 million a year ago. The year-over-year decrease was explained primarily by higher commodity costs, offset partially by favorable net pricing. Third quarter revenue was $2.5 billion, up from $2.1 billion a year ago.

Europe: For the third quarter, Ford Europe reported a pre-tax operating loss of $196 million, compared with a profit of $131 million a year ago. The year-over-year decline primarily reflects lower industry volume and market share and higher costs, including structural costs to support product launch and engineering spending and higher commodity costs. Third quarter revenue was $6.2 billion, down from $7.3 billion a year ago.

Asia Pacific Africa: For the third quarter, Ford Asia Pacific Africa reported a pre-tax operating profit of $30 million, compared with a profit of $22 million a year ago. The year-over-year increase is explained primarily by higher industry volume and material cost reductions, offset partially by higher structural costs to support investment in Ford’s product and growth plans and market mix shifts from mature to emerging markets. Third quarter revenue was $1.8 billion, up from $1.5 billion a year ago.

Other Automotive: Other Automotive consists primarily of interest and financing-related costs, and resulted in a third quarter pre-tax loss of $369 million, explained primarily by net interest expense of $346 million.

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