DEARBORN, Mich. (Oct. 30, 2012) – Record profit and operating margin in North America and continued solid performance from Ford Credit drove the best-ever third quarter profit for Ford Motor Co. as it reports quarterly results today.
The company reported a pre-tax profit of $2.2 billion, or 40 cents per share, and net income of $1.6 billion, or 41 cents per share. The company also continued to generate positive Automotive operating-related cash flow, and ended the period with a strong liquidity position of $34.4 billion, an increase of $500 million from the second quarter.
“The Ford team delivered a best-ever third quarter, driven by record results in North America and the continued strength of Ford Credit,” said Alan Mulally, Ford president and CEO. “While we are facing near-term challenges in Europe, we are fully committed to transforming our business in Europe by moving decisively to match production to demand, improve revenue through new products and a stronger brand, improve our cost efficiencies and take advantage of opportunities to profitably grow our business.”
Automotive operating-related cash flow was $700 million, the 10th consecutive quarter of positive performance. Ford finished the third quarter with Automotive gross cash of $24.1 billion, exceeding debt by $9.9 billion. This is a net cash improvement of $1.8 billion compared to a year ago, and an increase of $400 million from the second quarter. Automotive debt of $14.2 billion at the end of the third quarter was unchanged from the end of the second quarter. Ford completed its last drawdown of low-cost loans for advanced technologies in August, and began repayment in September.
Ford also made payments of $600 million to its worldwide funded pension plans. This included $500 million in discretionary payments to U.S. funded plans in line with the company’s previously disclosed long-term strategy to de-risk its funded pension plans. Dividends paid in the quarter totaled nearly $200 million.
The increase in total Automotive pre-tax profit and operating margin is more than explained by the record quarter in North America. This was driven primarily by higher net pricing and lower contribution costs, offset partially by higher structural costs and unfavorable exchange. Lower contribution costs reflect primarily favorable commodity hedge effects.
Ford North America
For the third straight quarter, Ford North America pre-tax profit exceeded $2 billion, and its operating margin exceeded 10 percent. The improvement compared with third quarter 2011 reflected favorable volume and mix, higher net pricing and lower contribution costs, mainly favorable commodity hedging effects; higher structural costs and unfavorable exchange were partial offsets. Ford North America’s pre-tax profit through the first nine months of 2012 exceeded its 2011 full year profit.
The company’s outlook for North America for full year 2012 remains unchanged. Ford expects significantly higher pre-tax operating profit and margin compared with 2011, as consumers continue to respond to the company’s strong product lineup. Ford also remains committed to maintaining its competitive cost structure as it grows its business in North America.
During the quarter, the company added a shift to its Louisville Assembly Plant, where it builds the all-new Escape. This was the last major action in the company’s plan to add 400,000 units of annual incremental capacity by the end of the year.
Ford South America
Pre-tax profit and operating margin, while slightly positive, declined substantially compared with a year ago primarily due to unfavorable exchange – mainly a weaker Brazilian real – unfavorable volume and mix, and higher costs. Volume was affected in the quarter by the launch ramp-up of new products and production reductions in Venezuela related to currency restrictions. Although net pricing was higher, it was constrained compared to prior years by a more intense competitive environment.
Ford continues to expect Ford South America to be profitable for the full year, but at a level substantially lower than 2011, consistent with prior guidance.
Ford Europe
Ford Europe’s results compared with a year ago largely reflected unfavorable market factors, including the lowest level of industry sales in almost 20 years. The decline is more than explained by lower volume, including lower industry, lower share and unfavorable dealer stock changes; lower costs and favorable exchange were partial offsets.
With industry sales for the 19 markets the company reports having dropped by 20 percent in the past five years and only modest improvement expected by mid-decade, the company reported that it believes the changes in the European business environment to be structural, rather than cyclical, in nature. Against this backdrop, Ford last week announced a series of actions to accelerate its European transformation and restore its European operations to profitability by mid-decade, targeting a long-term operating margin for Ford Europe of 6 to 8 percent.
The strategy under the One Ford plan focuses on all parts of the business – product, brand and cost. The approach includes an aggressive new product rollout of 15 new global vehicles within five years, along with the introduction of a broad array of smart technologies. The company also announced new initiatives to continue strengthening the Ford brand, including strategic destocking of dealer inventories in the fourth quarter of 2012.
Finally, Ford announced a plan to close three facilities and relocate products for a more efficient manufacturing footprint, including leveraging One Ford operations outside of Europe for some of its new products. The planned facility actions would reduce Ford Europe’s installed vehicle assembly capacity, excluding Russia, by 18 percent or 355,000 units, affect 13 percent of its workforce, and yield gross cost savings annually of $450 million to $500 million when completed. Some actions are subject to an information and consultation process with employee representatives in Belgium.
Ford reiterates its Oct. 25 guidance that, as a result of the deteriorating environment in Europe, as well as elements of its transformation plan, the company now expects Ford Europe’s pre-tax loss for full year 2012 to exceed $1.5 billion.
Ford Motor Credit Co.
The decrease in Ford Credit’s pre-tax results was in line with expectations and was more than explained by fewer lease terminations, which resulted in fewer vehicles sold at a gain, lower financing margin and the non-recurrence of credit loss reserve reductions.
Ford Credit now expects full year pre-tax profit of about $1.6 billion, and total distributions to its parent of about $600 million. Ford Credit continues to project managed receivables at year end to be in the range of $85 billion to $90 billion.
Ford Credit remains a strategic asset for Ford, delivering high levels of quality and customer satisfaction with operating efficiencies that are among the best.
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