Ford Credit In the Black, Ford Motor Co. has $2.3B Profit

What a terrific set of events for Ford!  They don’t take the bail out money and good things start to happen.  First, Ford Credit announced that it has posted net income of $413 million for the second quarter, a significant improvement of $1.8 billion from a net loss of $1.4 billion last year.  The Detroit News also reported on a pre-tax basis, that the company said it earned $646 million for the period, compared with a loss of $2.4 billion in the prior year. As of June 30, Ford Credit said its on-balance sheet net receivables came in at $99 billion, compared with $116 billion at the end of 2008. Managed receivables, meanwhile, were $100 billion, down from $118 billion as of Dec. 31 of last year.

“The lower receivables primarily reflected lower North America and Europe receivables, mainly due to lower industry volumes, lower dealer stocks and the transition of Jaguar, Land Rover and Mazda financing to other finance providers,” officials indicated. On June 30, the company had a managed leverage of 8.4 to 1. Also, executives said that during the second quarter, Ford Credit completed a cash tender offer, purchasing $3.4 billion principal amount of its unsecured, nonconvertible debt securities for an aggregate cost of $1.1 billion, including transaction costs.

Second, Ford Motor Co.’s unexpected $2.3 billion second-quarter profit could signal the end of the worst downturn in recent automotive history for at least one of Detroit’s automakers, but Ford’s recovery still depends on the broader economy.  Though Ford’s profit was due largely to one-time gains, consistent improvements in its underlying financials are sparking optimism among investors, analysts and union leaders that has not been seen for some time.  It was nice to see that Ford shares gained 60 cents Thursday on the results, closing up 9.4 percent at $6.98.

According to the Detroit News, the company also said it has reached a new agreement with the United Auto Workers that will allow Ford to cover billions in retiree health care obligations with company stock priced at current market values — previously, the UAW said the shares had to be valued no lower than about $2.  That’s a vote of confidence in Ford’s future, said Sean McAlinden, chief economist at the Center for Automotive Research.  “This is a stock that, when this economy recovers, is going to $20,” he said. “I’d say we’ve got a hot auto company here in Michigan again.”

The numbers offered a sharp contrast to the staggering $8.7 billion loss Ford posted in the same quarter a year ago. Excluding one-time items, Ford still surprised analysts with a loss from continuing operations of $424 million, about half what Wall Street expected and a $609 million improvement over 2008.
Talk about good news for the automaker. Ford cut its cash burn rate by more than two-thirds, from $3.7 billion in the first quarter to $1 billion. It also saw the amount it makes on each product increase in key markets such the United States, and gained 2 percentage points in U.S. market share over the same period last year despite lower incentives.  It’s just great to see that the only auto company that did NOT take the government bailout and the only auto company that is not being run by the government, is showing signs that capitalism is not dead.

“Those are real proof points that the plan is working,” CEO Alan Mulally told The Detroit News. “We’re moving into a different phase now. We’re starting to grow.”  He attributed the gains to aggressive cost-cutting, new products and better use of the company’s global assets.  “Mulally has recognized what was right at Ford and leveraged it, putting Ford in a strong position relative to its competition,” said analyst John Murphy of Merrill Lynch. “A good second quarter, and liquidity appears solid.”

If Ford’s stock remains high, some analysts expect the company to pursue another debt-for-equity swap. In May, Ford issued 345 million new shares of common stock, raising $1.6 billion, and helping it trim $10.1 billion in debt from its balance sheet since the beginning of the year.  Ford ended the second quarter with $21 billion in available cash, but still needs to improve its balance sheet to address lingering concerns that GM’s bankruptcy put the Detroit automaker on a stronger financial footing.

Again, it’s good to see Ford prosper and we can all hope that the success continues for the Non-Government owned automaker.  The free market is alive and well!