Ford Plans Took Toll On 2Q Profit
DEARBORN, Michigan (AP) — Ford's ambitious plans to grow in Asia took a toll on its second-quarter profit, with higher costs to design and sell new cars offsetting rising sales.
The company earned $2.4 billion, or 59 cents per share, down 8 percent from $2.6 billion, or 61 cents per share, a year earlier.
Ford Motor Co. warned last month that its profit could slip, citing investments in future products. Worldwide sales rose 7 percent, but the company spent $400 million more than it did last year to engineer and advertise new vehicles.
In Asia, it plowed money into new cars and trucks. The result was a pretax profit of just $1 million, down $112 million from the same time last year. Ford is spending millions to introduce 15 cars in India and China over the next four years.
Ford Chief Financial Officer Lewis Booth said that after years of restructuring and the recession, the company is strong enough to invest more heavily in future growth.
Ford controls less than 3 percent of the market in both India and China, but wants to increase its sales by 50 percent by mid-decade. By comparison, it held 17 percent of the North American market and 8 percent of the European market in the first quarter. But both of those markets saw softer sales in the quarter because of the economy and earthquake-related car shortages, Booth said.
In addition to the slew of new cars in Asia, the company is in the midst of an expensive overhaul of its flagging Lincoln luxury brand in the U.S. It also plans to introduce the hybrid-only C-Max minivan in the U.S. early next year.
Without one-time items, including $110 million for employee reductions, Ford would have earned $2.9 billion, or 65 cents per share. That beat analysts' forecast of 60 cents per share.
Ford also said it is spending more to increase production to meet post-recession demand. U.S. consumers are expected to buy nearly 2 million more cars this year than they did in 2010. Dealers say they are selling some Ford Focus cars hours after they hit the lot. Ford held a lottery to fill 1,800 jobs at a Kentucky plant earlier this month after nearly 17,000 people applied.
Ford expects U.S. sales will be in the lower end of its 13 million to 13.5 million forecast for this year.
U.S. auto sales stumbled in the quarter, losing the momentum they had before the March 11 earthquake in Japan. Some buyers turned to Ford and other brands when Japanese cars were in short supply. But others seem determined to wait until later this year, when Japanese stockpiles will be replenished.
Ford was able to command higher prices for its cars and trucks in the U.S., partly because of tight supplies. But Booth said automakers may spend more on incentives in the last half of the year as supplies return to normal.
For the second quarter, revenue rose 13 percent to $35.5 billion. Analysts polled by FactSet had forecast revenue of $32.15 billion.
Ford paid off $2.6 billion in debt during the quarter. The company now has $14 billion in debt, down from $16.6 billion in the same quarter a year ago, a legacy of its 2006 decision to borrow $23 billion to restructure the business. Ford hopes its steady reduction in debt will convince ratings agencies to return the company to investment-grade status, which would make it cheaper to borrow money.
Booth said ratings agencies aren't expected to act until after the company completes contract talks with the United Auto Workers union. Ford and the UAW are expected to kick off negotiations on a new four-year contract this Friday.
"These numbers are very positive for our negotiations because they really demonstrate what we have done together," Ford CEO Alan Mulally said. "The most important thing we can do is improve the competitiveness of the business."
But Ford's profit could make workers more likely to demand wage hikes and other perks that they gave up when Ford was struggling four years ago.
Ford shares were up 3 cents to $13.20 in mid-day trading.