The Only U.S. Automaker on Track, Ford Posts $2.1 Billion First-Quarter Earnings

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Ford Motor Co. (NYSE: F) beat Wall Street estimates by posting first-quarter earnings of $2.1 billion and said it will deliver a "solid profit" for all of 2010, a year earlier than Chief Executive Officer Alan Mulally had projected previously.

Reaping the benefits from a recovering auto market and higher prices for cars and trucks, Ford chalked up its fourth consecutive quarter of net income, the longest streak since 2005.

Ford's U.S. deliveries surged by 37%, more than twice the industry wide average through March, boosting domestic market share at the fastest pace in 33 years. Ford was the only U.S. automaker to avoid bankruptcy in 2009.

First-quarter revenue rose 15% to $28.1 billion, and net income after one-time charges was 50 cents a share, handily beating the projected adjusted earnings of 31 cents a share compiled by Bloomberg. The Dearborn, Michigan based company posted a net loss of $1.43 billion, or 60 cents, a year earlier.

"The most important thing Ford has done is invest heavily in new product during this down cycle," Erich Merkle, president of consultant Autoconomy LLC in Grand Rapids, Michigan told Bloomberg News. "As we're coming out, they've got all this new product coming out in just about every category."

That echoes a recent report by Executive Editor William Patalon in Money Morning, which noted that Ford is setting a winning strategy by stabilizing its product line while expanding in international markets.

"By the end of 2013, at least seven Ford vehicles will be built on "global" platforms, meaning that the basic designs will be the same from one country to the next with the only differences being due to safety or environmental regulations, or perhaps some detailing differences that are related to different customer preferences. That's a strategy that will enable Ford to control costs, shift production around to take advantage of currency swings, and streamline its development programs. In short, it's a winning global formula," Patalon wrote.

Ford's managers tempered the earnings report by warning the auto industry faces a more challenging second half as it faces rising interest rates, higher commodity prices and an expected sales drop in Europe.

"We remain cautiously optimistic about positive signs emerging in the global economy while knowing the recovery is fragile and the global auto industry continues to deal with excess capacity," said Ford Chief Executive Alan Mulally.

Ford plans to manufacture 625,000 new cars and trucks during the second quarter, up 39% from a year ago. The increase reflects "strong consumer demand" and the need to replenish dealer lots, the company said.

"We're very encouraged," Chief Financial Officer Lewis Booth told The Wall Street Journal. "The new products are coming onstream. And the fact that we've got our cost structure under control is helping the bottom line."

The compact Focus, the Fusion sedan, and F-150 pickup drove Ford's first-quarter U.S. sales gains, Booth said on a conference call. All global auto units were profitable in the quarter.

Ford said in a statement that it "now expects to deliver solid profits this year, with positive automotive operating-related cash flow." Mulally had previously projected the country's second-largest automaker wouldn't return to full-year profits until 2011.

The company also slowed down its consumption of cash. Ford used only $100 million of cash during the first quarter, after the company burned through $3.7 billion a year earlier. Booth said Ford would have positive cash flow for all of 2010.

The company is now sitting on $25.3 billion in cash, up from $24.9 billion at the end of 2009.

Despite the positive earnings news, Ford's stock fell 89 cents, or 6.15%, in trading yesterday (Tuesday) to close at $13.57 a share.

Even so, the stock has nearly tripled since Money Morning Contributing Editor Horacio Marquez recommended it on July 28, 2008, in his regular Monday "Buy, Sell or Hold" column.

He reiterated his recommendation in January and March 2009. Patalon expects Ford shares to continue to move higher, especially if they pull back below their recent 10-day moving average of about $12.90.

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