By Bob Blandeburgo
At a time when investors are looking everywhere for signs of an economic turnaround, Ford Motor Co. (NYSE: F) is gearing up for a rebound of its own.
The "Big Three" automaker yesterday (Thursday) became the latest U.S. firm to beat Wall Street estimates for the second quarter and said it remains on track to meet or exceed all of its financial and operational targets for the rest of this year. Ford even reaffirmed its outlook for fiscal 2011. The truckload of good news was enough to send the automaker's shares up 9.25%, to close at $6.97.
"[Ford Chief Executive Officer Alan] Mulally's largely achieved all of the benefits that Chrysler and GM received in bankruptcy without a bankruptcy," said John Wolkonowicz, an IHS Global Insight Inc. in a Bloomberg News interview. "He has truly streamlined that company."
A string of strong earnings reports from such sector leaders as Apple Inc. (Nasdaq: AAPL), The Coca-Cola Co. (NYSE: KO) and JPMorgan Chase & Co. (NYSE: JPM) have inflamed investor confidence and ignited stock prices. Yesterday, the Dow Jones Industrial Average eclipsed the 9,000 level for the first time since January.
Ford, the only automaker to refuse federal bailout money, reported an operating loss of $638 million, or 21 cents a share for the quarter, compared to a loss of $1.8 billion, or 75 cents a share in the previous quarter. The company posted an operating income of $768 million, or 42 cents a share in the same quarter last year. Wall Street was expecting an average loss of 48 cents per share.
Following a $3.4 billion gain related to debt-reduction actions, Ford posted net income of $2.3 billion, or 69 cents a share, compared to $11 billion, or $4.58 a share in the same quarter last year. Revenue shrank to $27.2 billion from $38 billion a year ago, keeping concerns about consumer spending high.
While Ford has more debt than General Motors (OTC: MTLQQ) and Chrysler Group LLC, – about $145 billion at the end of its first quarter ended March 31 – it is consistently demonstrating its ability to reduce that amount. The company said that in the second quarter it reduced its debt by another $10.1 billion, which would put its total debt around $135 billion.
"We'd obviously like to improve our balance sheet," Lewis Booth, Ford's executive vice president and chief financial officer, said in a. "The focus is on improving the business."
Ford is enjoying a cash cushion of $21 billion, with a large portion of that coming from loans the company took out in 2006. The company also raised $1.4 billion in May by offering 300 million of its shares at a price of $4.75. Only $1 billion of Ford's cash was spent in the second quarter.
The automaker may not need new equity thanks to its lower cash use and the possible sale of its Volvo division, Bank of America Corp. (NYSE: BAC) analyst John Murphy said yesterday in a note to clients.
"Based on its current planning assumptions, Ford has sufficient liquidity to fund its product-led transformation plan and provide a cushion against the uncertain global economic environment," Ford said.
Money Morning contributing editor Martin Hutchinson says that based on Ford's shrinking operating loss, it is on a clear path to profitability and should "be able to eat [GM and Chrysler's] breakfast going forward, given their government/union ownership."
Of Detroit's "Big Three," Ford is the only one worth looking at for investors, Hutchinson said in May, before Chrysler sold to Fiat SpA (OTC ADR: FIATY) and GM went in and out of bankruptcy.
News and Related Story Links:
Mulally Leads Ford to Third Profit as Debt, Labor Costs Fall
Analyst Estimates for Ford
Ford Posts Second Quarter Pre-Tax Operating Loss of $424 Million; Gains Market Share, Reduces Cash Outflow
For Auto-Sector Investors, Ford Truly is the "Better Idea"