Ford Posts 3rd-Qtr Loss of $284 Mln, First Since 2003 (Update2)
Ford Posts 3rd-Qtr Loss of $284 Mln, First Since 2003 (Update2)
Oct. 20 (Bloomberg) -- Ford Motor Co., the world's third- largest automaker, posted a $284 million quarterly loss, its first in almost two years as declining sales of profitable sport- utility vehicles hurt its North American automotive business.
The third-quarter net loss was 15 cents a share, compared with net income of $266 million, or 15 cents, a year earlier, the company said in a statement today. Revenue rose 4.4 percent to $40.9 billion. Ford's North American auto business had a $1.2 billion pretax loss, its fourth in the past five quarters. Chief Executive Officer William Clay Ford Jr. said he will announce ``significant plant closings'' in January.
``It's probably going to get uglier before it gets better,'' said analyst Mike Ward of Soleil Securities. The decline in SUV sales ``has to be a big chunk'' of the North American automotive loss, he said.
Bill Ford, 48, is eliminating salaried jobs, shifting management and closing plants to stem losses in North America. The company is reorganizing for the second time since he took over as CEO in October 2001. Sales of large SUVs, the heart of Ford's profits, have fallen sharply this year because of rising gasoline prices and shifting consumer tastes.
Ford Motor's worldwide auto operations had a $1.3 billion pretax loss. Ford also had costs to bail out Visteon Corp., its largest supplier, and to cut salaried jobs in North America. The average analyst estimate excluding some costs was for a 10-cent loss, and Ford said the loss on that basis was 10 cents.
Bill Ford said on a conference call today that he will ask for recommendations on the orth American plant closings by December.
The `Low End'
Ford today said full-year 2005 earnings will be on the ``low end'' of its previous forecast of profits of $1 to $1.25 a share, excluding what it calls one-time items. On that basis, Ford had profits of $1.02 a share through nine months. Ford had net income of $1.9 billion, or 95 cents a share, through September.
Ford during the quarter managed to snap a streak of 28 consecutive months of declining U.S. market share. The company followed the lead of larger rival General Motors Corp. in offering employee prices to all buyers, after GM introduced the incentive in June and increased U.S. sales 47 percent that month. Ford adopted the discounts in July, boosting sales 29 percent that month and ending the market-share decline.
Ford's U.S. sales of cars and trucks rose 5.2 percent for the quarter as the discounts boosted July and August results.
Quarterly sales fell 32 percent each for the midsize Explorer SUV and Expedition and Navigator large SUVs. Ford's pretax profit for each large or midsize SUV is $5,000 to $6,000, Burnham Securities Inc. analyst David Healy estimates.
SUVs, Cars and Fuel
Sport-utility vehicles are less fuel efficient than cars. Ford estimates its 2005 trucks, which include SUVs, pickups and minivans, can go an average of 21.5 miles per gallon of gasoline, while its cars average 28.2 mpg. A 2006 Explorer with a V-8 engine gets 15 to 20 miles per gallon of fuel, compared with 14 to 18 mpg for the 2005 model.
U.S. unleaded gasoline retail prices reached their peak on Sept. 5 and averaged $2.72 yesterday, according to AAA's Web site.
Ford shares fell 4 cents to $8.43 at 9:36 a.m. in New York Stock Exchange composite trading. The stock declined 3.7 percent during the third quarter and has fallen 42 percent this year through yesterday.
Bonds
Ford Motor Credit Co.'s 7 percent note due in 2013 fell a half cent to 95.250 cents on the dollar, the yield rising about 7 basis points to 7.8 percent, according to Trace, the bond price reporting service of the NASD. The extra yield investors demand to hold the note over government debt widened 5 basis points to 333 basis points. A basis point is 0.01 of a percentage point.
Ford's North American auto business also needs to use its factories more efficiently, company President Jim Padilla told reporters last month. The automaker's plants in the region are operating at 86 percent of capacity, based on two eight-hour shifts, according to Harbour Consulting in Troy, Michigan. Ford must raise that to ``over 90 percent on average,'' Padilla said.
Plants with excess capacity include Wixom, Michigan, where production of the Thunderbird car ended earlier this year and the LS sedan is set to halt in 2006; St. Louis, which makes Explorers on only one shift; and St. Paul, Minnesota, Ford's oldest U.S. factory, which builds Ranger small pickups. Ranger U.S. sales fell 22 percent through September.
Bill Ford told reporters on Sept. 21 that Mark Fields, his new North American chief, is reviewing the situation.
`Disappointing'
``Ford realizes they have to do more cost cutting,'' said Wil Stith, who helps manage $2 billion in debt at Baltimore-based MTB Investment Advisors, including Ford debt. ``North America is disappointing, but it was expected. Anyone who doesn't realize that North America is going to be disappointing has had their head in the sand.''
Bill Ford earlier this year responded to North American losses by planning to cut about 2,750 salaried jobs. The reductions have included firing some employees, in such areas as public affairs, marketing, manufacturing and product-development engineering. Ford finished the firings on Sept. 29.
Ford had $158 million in pretax costs for the job cuts in the third quarter. The company also had $180 million in pretax costs related to its Visteon bailout. Ford took back 23 plants and offices from the auto-parts supplier on Oct. 1. Ford intends to sell most of the factories transferred from Visteon. Ford agreed to take back the facilities in May, saying it needed to secure a steady supply of parts from money-losing Visteon, its largest supplier.
UAW Negotiations
The automaker also is negotiating with the United Auto Workers to reduce Ford's U.S. health-care tab. GM on Oct. 17 announced an agreement with the Detroit-based union that the company said will save it $1 billion a year. GM estimates it will spend $5.6 billion this year on U.S. health care.
Ford estimates its 2005 U.S. health-care bill at $3.5 billion. Group Vice President Joe Laymon said in an Oct. 17 interview that the automaker and union are in ``very private and constructive'' discussions.
Standard & Poor's, which rates Ford debt at BB+, the highest non-investment grade, said Oct. 3 that it was reviewing the automaker and might further reduce the rating. S&P said it had ``increased concerns about Ford's ability to effect a turn around at its troubled North American automotive operations.''
S&P plans to finish the review after Ford announces fourth- quarter and year-end financial results in January. S&P said any reduction probably will be only one level, to BB.
To contact the reporter of this story: Bill Koenig in Dearborn, Michigan, at wkoenig@bloomberg.net
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