Ford (F) Profits Improve $3.34B

Ford Motor Co. (F) posted a profit of $2.7 billion or 68 cents per share (before special items that include sales of Volvo cars, among other things) in the second quarter of the year, far outdoing the Zacks Consensus Estimate of 40 cents per share. The profit improved $3.34 billion from a loss of $638 million or 21 cents per share (before similar adjustments) in the second quarter of 2009.

Sales in the quarter appreciated 17% to $31.3 billion, higher than the Zacks Consensus Estimate of $29.5 billion. Excluding sales of Volvo cars in 2009, sales surged 31%. This company’s strong results were attributable to better performance by its Automotive operations around the world, driven by strength of new products.

Results by Segment

The Ford Automotive segment witnessed a 22% increase in revenues to $28.8 billion. The pre-tax operating profit was $2.1 billion in contrast with a loss of $1.1 billion a year ago. The improvement reflected favorable net pricing, higher volume and mix.

In North America, revenues jumped 58% to $16.9 billion. The region showed a pre-tax operating profit of $1.9 billion compared with a loss of $899 million a year ago. The improvement was attributable to higher volume, mix and favorable net pricing.

In South America, revenues shot up 44% to $2.6 billion. Pre-tax operating profit in the region was $285 million compared with $86 million a year ago. The increase was due to favorable net pricing and exchange rates as well as higher volume and mix, partially offset by increases in commodity and structural costs.

In Europe, revenues scaled up 7% to $7.5 billion. Pre-tax operating profit was $322 million compared with $57 million a year ago. The improvement was attributable to lower operational costs, partially offset by unfavorable net pricing.

In Asia-Pacific & Africa, revenues surged 50% to $1.8 billion. Pre-tax operating profit was $113 million compared with a loss of $27 million a year ago. The improvement reflected higher industry volumes, lower operational costs and favorable exchange rate.

Ford’s Other Automotive — consisting primarily of interest and financing-related costs — revealed a pre-tax loss of $551 million in the quarter due to a net interest expense of $459 million and unfavorable fair market value adjustments of $92 million, associated with the automaker’s investment in Japan’s Mazda Motors.

Financial Services

The Financial Services segment reported an increase in pre-tax operating profit to $875 million from $595 million in the previous year. Ford Credit showed a rise in pre-tax operating profit to $888 million from $646 million a year ago.

The increase was attributable to a lower provision for credit losses and lower residual losses due to higher auction values, partially offset by the non-recurrence of net gains due to unhedged currency exposures in the previous year as well as lower volume.

Financial Position

Ford had cash and marketable securities of $21.9 billion as of June 30, 2010 , a marginal improvement from $20.9 billion a year ago. Total Automotive debt fell $6.8 billion to $27.3 billion as of the above period.

The reduction in debt caused by a payment of $3.8 billion to the United Auto Workers (UAW) Retiree Medical Benefits Trust and a repayment of $3 billion of Ford’s revolving credit facility. It saved more than $470 million in annualized interest expense for Ford.

In the first half of 2010, the company’s Automotive operating-related cash flow improved $7.3 billion to $2.5 billion, driven by higher profit and favorable changes in working capital. Capital expenditures increased by $200 million to $1.9 billion during the above period.

Guidance

In the upcoming quarter, Ford anticipates production level to increase 126,000 units from the prior year to $1.27 million units. For full year 2010, the automaker expects full-year industry volume (including medium and heavy trucks) in the U.S. in the range of 11.5 million units to 12 million units.

In the 19 European markets covered by Ford, the full-year industry volume (including medium and heavy trucks) is expected in the range of 14.5 million units to 15 million units, due to a stronger-than-expected first half, offset by a weaker second half.

In 2010, structural costs in the Automotive segment is expected to go up by $1 billion from the previous year in order to support key product launches and other growth plans. The automaker also expects commodity costs to rise by $1 billion for the year. Capital spending is expected to be $4.5 billion as the company continues to focus on its product development plan.

For 2011, Ford expects its profit to be lower than 2010 due to the occurrence of less favorable factors compared to this year. However, the company expects to improve its financials from a net debt position to a net cash position.

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