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How Ford Made Money

Ted Reed

DETROIT (TheStreet) -- For Ford(F), getting to a $997 million third quarter profit involved beating expectations on two fronts.

Revenue came in $31 billion, which was 9% higher than analysts had estimated. Meanwhile, the pace of cost reductions beat Ford's own projections. The automaker reduced automotive costs by $1 billion in the quarter, bringing the nine-month total to $4.9 billion, ahead of the full-year 2009 target of $4 billion.

"What you're seeing here today is a tremendous proof point, CEO Alan Mulally said on the conference call.

"The most important thing we continue to do, and what is so neat about today for everybody, is that we have a plan to profitably grow Ford over the long term," Mulally said, adding that the plan was put in place three years ago and the profits are "absolutely the results of focused attention on that plan." The plan was implemented soon after Mulally arrived in 2006; it included making better vehicles, raising capital, sizing the company for the market and establishing a global manufacturing platform.

Ford's successful quarter was unveiled hours before the company announced the UAW did not modify changes to a national labor agreement.

The cost reductions were not easy, said CFO Louis Booth. "We've had record levels of productivity improvements around (the world); we've had some pretty painful personnel reductions (and) we're also beginning to reap the benefit of global product development," improving products while moving to the global platform.

Sharp improvements came at Ford North America, which posted a pre-tax operating profit of $357 million -- its first profitable quarter since the first quarter of 2005. "The key elements of their performance are led by the industry and the economy," Mulally said. Everybody benefited from an improved economy, but Ford benefitted more than others.

Ford gained market share, partly due to improved products, partly due to consumer perceptions of a company that rejected government aid while competitors required bailouts. Booth said market-share gains enabled Ford to decrease incentives, thereby boosting profits. During the quarter, Ford's market share was 14.6%, up from 12.4% in the same quarter a year earlier. The retail share was 13.1%, up 2.1%.

Ford made money in every major global region. In Europe, its share was 9.2%, the highest third-quarter level in 10 years, as Ford Fiesta was the continent's second best-selling car. Ford Europe had an operating profit of $193 million, while Ford South America had an operating profit of $247 million. In the Asia Pacific region, the operating profit was just $27 million, as gains in China were offset by declines elsewhere.

Ford also got a boost from the financial services, which contributed $661 million or 73 % of the $1.1 billion in pre-tax profits. A year earlier, the contribution was $161 million. The increase reflected lower residual losses due to higher auction values and lower provisions for credit losses.

During the quarter, Ford reported net income of $997 million or 29 cents a share. Analysts surveyed by Thomson Reuters had estimated a loss of 12 cents. Revenue fell 3% to $30.9 billion. Analysts had estimated $28.3 billion. Shortly after midday, Ford shares were trading at $7.59, up 59 cents or 8.4%.

-- Written by Ted Reed in Charlotte, N.C. .