Ford Earns $1.65 Billion In Third Quarter

By Michelle Krebs October 26, 2011

Ford Q3 2011 Sales lede.jpg

Ford Motor Co. reported a third-quarter profit of $1.65 billion, exceeding analysts’ projections. It was Ford’s second-highest third-quarter profit, surpassed only by the 2010 third quarter when Ford earned $1.69 billion. It also was Ford’s 10th consecutive profitable quarter on a net income basis. The company delivered “solid results” despite “an uncertain business environment,” Ford President and CEO Alan Mulally said in a statement issued Wednesday.  “We accomplished this while continuing to invest for future growth and focusing on developing outstanding products with segment-leading quality, fuel efficiency, safety, smart design and value.”

Ford lost money on its commodities hedging as commodity prices fell significantly instead of rising in late September. Strength came from increased overall sales volume, a richer mix of vehicles – including more crossovers such as the redesigned 2012 Explorer (above), lower incentives and higher transaction prices from a year ago. Explorer sales have more than doubled this year, hitting the 100,000-unit mark for the first time since 2007, while utility vehicles and pickup trucks – which generally carry higher price tags than cars – are accounting for more than two-thirds of Ford’s U.S. sales. Explorer buyers paid an average of $38,108 per model, the highest amount since Edmunds.com began tracking prices in 2002. On Tuesday, Consumer Reports magazine said the Explorer had below-average reliability due largely to problems with its MyFordTouch infotainment system, while the entire Ford brand dropped to 20th from 10th place among 28 auto makes in the magazine’s annual reliability survey.

The bulk of Ford’s earnings in the third quarter came from automotive operations, which generated a pre-tax operating profit of $1.3 billion (an increase of $45 million compared with the same period last year) and produced positive automotive cashflow of $400 million. Ford Credit profits were down by $185 million to $581 million. Globally, Ford sold 1.346 million vehicles, up from 1.253 million from a year ago. As a result, revenues totaled $33.1 billion, a $4.1-billion increase from the third quarter of 2010. Ford paid down another $1.3 billion in debt, which now amounts to $12.7 billion.

AO201110 Ford Sales.jpgU.S. Performance Improves
Ford’s U.S. vehicle sales in the quarter totaled 531,284, up 8.7 percent from a year ago, for a 16.7-percent market share, off a scant 0.4 percentage points from third-quarter 2010. In addition to the increased volume, Ford improved its financial performance by reducing incentives from the year-ago third-quarter to an average of $2,771 per vehicle, a hefty 10.4-percent drop from 2010, according to Edmunds.com’s analysis.

As a result of lower incentives and a richer mix of vehicles sold – including more utility vehicles – Ford’s average transaction price amounted to $32,391 per U.S. vehicle in the third quarter, up 4.8 percent from the year-ago quarter. Though Ford’s incentives are up 3.9 percent in the third quarter from the second, the automaker still improved its average transaction price by 3.9 percent from the second quarter. Ford also is keeping tight control of its U.S. vehicle inventory, with the average days-to-turn – the time from the vehicle being delivered to a dealership to a customer buying it – at 49 days, better than the 60-day industry ideal and less than Ford’s year-ago levels, according to Edmunds.com’s calculations.

AO201110 Ford TCI DTT.jpgFor the full year, Ford said it “plans to deliver continued improvement” in pre-tax operating profit and automotive operating-related cashflow compared with 2010. For the year so far, Ford has earned $6.6 billion, up $227 million from the first three quarters of 2010 when Ford made $6.37 billion. In the United States, Ford sold 1,603,669 vehicles through September, a hike of 8.9 percent that resulted in a market share of 16.8 percent, down from 2010’s 17.1 percent. Ford incentives for the year-to-date are down 13.8 percent to an average of $2,737 per vehicle, pushing the average transaction price up 3.3 percent to $31,709, according to Edmunds.com’s calculations.

AO201110 Ford Q3 2011 Sales.jpgWith solid financial performance followed by a new 4-year contract with the United Auto Workers union and a hike in its credit rating, Ford is under pressure to reinstate a dividend to its shareholders; it suspended the dividend in September, 2006. Ford CFO Lewis Booth would only tell analysts and media in Wednesday’s conference call that the automaker would like to pay a dividend “sooner rather than later” but had nothing to announce.

AO201110 Ford Q1-Q3 2011 Sales.jpg

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bc1960 says: 11:22 AM, 10.26.11

It seems like continuing to pay down debt and maintain reserves for the next downturn are better uses of cash than resuming dividends. If a company with $80 billion reserves and zero debt like Apple can get away without paying a dividend, there is no reason why Ford, which is performing well but has a ways to go and faces stronger competition, should.

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