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Ford Earnings Likely to Be Strong

Analysts forecasting strongest Q1 since 1998.

by on Apr.25, 2011

The emphasis is on "profitable growth," according to Ford CEO Alan Mulally.

It’s been a challenging couple of months for the auto industry.  There’s the near-record run-up in petroleum prices, and the Japanese parts shortage that has crippled makers around the world.  Raw material costs have been soaring.  And the economies of some key auto markets have been in the doldrums.

Yet, you might not even notice if you simply watch Ford Motor Co., industry and financial analysts suggest – forecasting that the maker will tomorrow report its strongest first quarter profit since 1998.

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Earnings are forecast to reach as high as 50 cents a share, a nearly 10% rise from the 46 cents reported for the January – March quarter of 2010.  Net income, according to a consensus of analysts, is expected to reach $2.1 billion, the largest figure for the quarter since Ford generated net income of $17.6 billion in 1998.

Such numbers could help quell concerns about the vitality of the auto industry at a time when investors have been pulling back, anticipating serious problems as fuel prices soar – especially for Detroit makers traditionally dependent upon low-mileage light trucks.

But earlier this month, Ford CEO Alan Mulally signaled his confidence the automaker was making a transition away from that traditional truck dominance, focusing more on new, high-mileage passenger cars, like the compact Focus and subcompact Fiesta.

“With the fuel prices moving up, we now have the vehicles that people want,” Mulally told reporters. “The largest vehicles are slowing down a little bit, but all these smaller ones from Ford are now available.”

Ford also has insisted that the addition of new, high-mileage powertrains, notably the new EcoBoost system, should help it hold onto truck buyers better than competitors.  The V6 engines were recently added to both the Explorer SUV and F-Series pickup lines.

He also indicated that while the number two Detroit maker could feel some pressure from the ongoing shortage of Japanese parts triggered by last month’s earthquake, it shouldn’t have any material financial impact.

“Even though we might slow down or even stop temporarily some…specific operations, it would have no material impact,” said Mulally. “We have not said anything about any of this affecting our earnings.”

So far, Ford has had to halt taking orders for several paint colors whose pigments are produced in Japan, but Mark Fields, the automaker’s President of the Americas, said, last week, that he did not expect to see any Ford assembly plants close due to parts shortages in the near-term.

Still, Bryan Johnson, an analyst with Barclays Capital, cautioned that there is still “a healthy level of worry out there.”

A strong second-quarter showing would help offset concerns raised when Ford fell short of projections for the final three months of 2010.

With the overall U.S. car market recovering, Ford posted a 12% sales gain during the first quarter of 2011 – but that was down from a 16% jump the prior year.  A consensus of eight leading analysts suggests revenues for the latest quarter might have actually declined slightly, from $31.6 billion to $30.8 billion, but Mulally has been a stickler for what he terms “profitable growth.

In practical terms, that has meant a reluctance to go overboard on incentives, which have been lagging the sizable rebates offered by cross-town rival General Motors. In turn, Ford has accepted a modest decline in market share this year rather than risk a sharp hit to its profit margins.

“The most important thing about our plan is profitable growth, so that leads us to tremendous discipline on everything about the business,” Mulally explained to reporters this month. “The No. 1 thing is to match the production capacity to the real demand.”

Ford is the only one of the big three to avoid going into bankruptcy in 2009, despite losses of $30.1 billion between 2006 and 2008.  But the price for that was the $23 billion in loans inked in 2008, just as the industry began slipping into its worst downturn since the Great Depression.  The number two maker has been pressing hard to trim back that debt hoping to reduce borrowing costs and further boost profitability.

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