Ford's Finance Arm Drives 2Q Earnings

Tuesday, July 20th 2004, 12:04 pm
By: News On 6

DEARBORN, Mich. (AP) _ Ford Motor Co.'s finance arm drove second-quarter earnings, which nearly tripled from a year ago, but its automotive business struggled despite much improved results in Europe.

The nation's second-largest automaker said Tuesday it earned $1.2 billion, or 57 cents a share, in the April-June period versus a profit of $417 million, or 22 cents a share, a year earlier.

Excluding special items, Ford earned $1.3 billion, or 61 cents a share, which surpassed Wall Street's consensus estimate by 11 cents a share.

Revenue rose to $42.8 billion from $40.6 billion a year ago. Automotive sales rose to $36.7 billion from $34.1 billion last year.

The company said business conditions in North America remain extremely competitive and are likely to remain that way.

Still, Ford raised its full-year earnings guidance by 15 cents a share to a range of $1.80 to $1.90 a share, excluding special items. The current Wall Street estimate is $1.95 a share.

The increase largely reflects the strong performance of Ford Motor Credit Co., the automaker's finance division, which has contributed heavily to the bottom line in recent quarters.

In the April-June period, Ford Motor Credit reported record net income of $897 million, up $496 million from a year ago, accounting for the bulk of Ford's profit.

``When you look at our second-quarter results, you see continued strong performance in financial services and significant progress at Ford Europe, where actions we took last year have begun to pay off,'' chief financial officer Don Leclair said.

Charges in the second quarter totaled $140 million _ $120 million related to a revaluation of Ford's investment in Ballard Power Systems, its fuel cell joint venture, and $20 million for the completion of its restructuring in Europe.

Analysts said Ford's automotive results were largely underwhelming.

On a pretax basis, Ford's worldwide automotive sector lost $57 million in the quarter. Excluding the $140 million in charges, global automotive profits were $83 million, an $80 million improvement over last year.

In North America, the automotive pretax profit was $455 million excluding special items, up $10 million from a year ago. The increase reflected improved vehicle mix and favorable net pricing despite lower sales. Net revenue per unit rose $756 to $21,833 in the quarter from $21,077 a year ago.

Ford, like its bigger rival General Motors Corp., posted a larger-than-anticipated sales decline in the United States last month. Through June, U.S. sales of Ford, Lincoln and Mercury vehicles were off 4.3 percent from a year ago, and the company's U.S. market share was at 18.8 percent versus 19.9 percent through six months of 2003, according to Autodata Corp.

In a research note, Merrill Lynch analyst John Casesa acknowledged Ford's better-than-expected second-quarter results, ``but the overwhelming concentration of earnings in financial services will likely give investors reason for pause, given the prospect of rising interest rates and after the company posted several quarters of improvement in its auto business.''

In afternoon trading on the New York Stock Exchange, Ford shares were down 51 cents, or 3.4 percent, at $14.47.

Ford said it hopes the introduction of several new vehicles by year's end, such as the Ford Five Hundred flagship sedan and Escape hybrid sport utility vehicle, will lift sales and improve its market share position.

Results were much more positive in Europe, where Ford reported a pretax profit of $211 million, excluding special items, versus a loss of $525 million in the year-ago quarter. The company attributed the $700 million-plus improvement to lower costs and higher sales, particularly in Turkey and Russia.

Business at Ford's Premier Automotive Group, which includes the Volvo, Jaguar, Land Rover and Aston Martin brands, was disappointing, the company said.

The group reported a pretax loss of $362 million in the quarter after posting a profit of $166 million a year ago. The reason: unfavorable exchange rates, higher costs, an unfavorable mix of vehicles and lower net pricing.

In particular, Leclair said, Jaguar's U.S. sales have been below expectations and cost improvements at Jaguar and Land Rover have been slower than expected.

``We know we need to address this situation, particularly at Jaguar, and we're working hard right now,'' Leclair said without offering specifics.

Ford Asia-Pacific and Africa reported a combined pretax loss of $5 million, a $23 million improvement from a year ago.

Ford maintained its production schedule for the third quarter, which calls for building 31,000 fewer vehicles than the same period last year.

The company said it expects to earn in the range of break-even to 5 cents a share in the July-September period, excluding special items. That's below the current Wall Street estimate of 15 cents a share, though Ford has consistently topped those forecasts over the past couple of years.

For the first half of the year, Ford earned $3.12 billion, or $1.51 a share, up from $1.31 billion, or 67 cents a share, a year ago. Revenue for the first half rose to $75.6 billion from in $68.3 billion a year ago.