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Ford Motor Company made net income of $2.6 billion in the second quarter of this year. That comes to 61 cents per share, better than investment analysts' expected 48 cents per share. The profit looks good from a number of perspectives. It's Ford's best profit in six years, $338 million better than the Q1 '10 profit, and $3.5 billion better than Q2 '09's loss. And Ford says it expects its cash on hand to exceed automotive debt by the end of 2011.
CLICK TO VIEW GALLERYIn other words, cash in the bank will exceed debt by the end of next year. This is the once infamous - now famous for proving CEO Alan Mulally's prescience - debt that included putting up the Blue Oval trademark as collateral. At the end of the last quarter, that debt, which helped Ford through the worst industry downturn since the Great Depression, totaled $27.3 billion. And that was paid down from $34.3 billion at the end of the previous quarter.
That Q2 debt reduction includes $3.8 billion Ford paid to the United Auto Workers Retiree Medical Benefit Trust and $3 billion to Ford's revolving credit, saving more than $470 million annually in interest payments. Ford will reduce that $27.3 billion to somewhere below $21.9 billion (its current cash on hand) to reach the net cash position.
For the record, Ford's pre-tax operating profit was $2.9 billion, with $2.1 billion coming from automotive operations. Ford says it earned money in all of its world regions. Total revenue was $31.3 billion, up by $4.5 billion from the second quarter of '09, or an increase of $7.4 billion if you remove Volvo revenue from the Q2 '09 results. If Volvo was still part of Ford, it would have contributed $53 million in pre-tax profit for the second quarter.
So how did Ford do it?
It improved pricing by $1.1 billion in the second quarter (up from a $900 million improvement for the first quarter). This means 2010 Tauruses that sold for much more than the previous Five Hundred/Taurus, Flexes that stickered for nearly as much as Lincoln MKTs, Focuses sold with Sync systems, four-cylinder Fusions that sold for more money, say with heated leather seats and premium sound systems, than cloth-seat V-6 Fusions. "Improved pricing" also means Ford cut incentive spending, by $200 million worldwide in the quarter.
Product mix brought in another $1.5 billion. That means a higher ratio of Lincolns to Mercurys, for example, and a resurgence of F-150 sales. Add improved pricing to product mix and you get $2.6 billion.
Here's the requisite Mulally quote: "We delivered a very strong second quarter profit and first half of 2010 and are ahead of where we thought we would be despite the still-challenging business conditions. We remain on track to deliver solid profits and positive automotive operating-related cash flow for 2010, and we expect even better financial results in 2011."
Warning to those of you who see softening car sales as evidence of a double-dip recession: Ford hasn't downgraded its sales expectations for the second half of this year. "Ford expects full-year 2010 U.S. industry volume will be in the range of 11.5 million to 12 million units," it says. If the recovery is sputtering, Ford will find it harder to achieve its "positive cash position" by the end of next year.
Meanwhile, it looks like General Motors will also release good second-quarter results, and that Chairman and CEO Ed Whitacre will announce in August intentions to issue stock. The Detroit Bureau reports that Whitacre believes the value of an initial public offering may be enough to buy out all or part of the 61 percent the Treasury department owns, paying back nearly $50 billion in federal bailout money.
As you read Thursday, GM has announced it will buy AmeriCredit Corporation, for $3.5 billion. With GMAC renamed Ally and under the control of Cerberus, GM figures it needs a captive credit company to get more customers into its showrooms. Iowa Senator Chuck Grassley, ranking Republican on the Finance committee, figures TARP's special inspector general should look into GM's plans.
"If GM has $3.5 billion in cash to buy a financial institution, it seems like it should have paid back taxpayers first," Grassley said in his letter to Special Inspector General Neil Barofsky. "After GM's experience with GMAC, which left GM seeking a taxpayer bailout, you have to think the company, and, in turn, the taxpayers would be better off if GM focused on making cars that people want to buy and stayed clear of repeating its effort to make high-risk car loans."
I wonder how Grassley will react when GM issues an IPO just in time for the November mid-term elections.
Read more: http://blogs.motortrend.com/6668293/earnings/ford-cuts-incentive-costs-raises-average-transaction-prices-makes-26-billion/index.html#ixzz0v8Ee7O1o
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