Ford Motor Co posted a stronger-than-expected quarterly profit of $2.6 billion and said it was on track for higher earnings and lower debt in 2011, sending its shares up 4 percent.
The No. 2 U.S. automaker lowered the top end of its range for U.S. auto industry sales for 2010, citing in part the slow recovery in the U.S. economy. But it said the recovery was sustainable.
Ford has now posted five consecutive quarterly net profits after recording net losses totaling $30 billion from 2006 through 2008 as it cut jobs, sold brands and began to rebuild a product lineup overly reliant on large SUVs and pickup trucks.
It was a solid quarter, they are definitely back on track, said Mirko Mikelic, a fixed income portfolio manager at Fifth Third Asset Management in Grand Rapids, Michigan.
The only major headwind for the company would be the weak to tepid outlook for the economy, and Ford is positioned to do real well if the economy improves, he said.
I don't think many people are predicting a double-dip recession, but that would be the only thing that would really slow them down, Mikelic said.
Ford's top-selling vehicle remains the F-Series pickup truck, and the automaker has made deep investments in its car lineup in recent years, including the Fusion mid-size sedan, the Taurus full-size sedan and Fiesta small car.
Ford unveils the next version of its Explorer SUV on Monday at events with Chief Executive Alan Mulally in New York and Executive Chairman Bill Ford in Chicago. Sales in the large SUV segment have sunk since the Explorer drove Ford's profits a decade ago.
Ford shares were up 49 cents at $12.58 in early-afternoon trade.
AUTOMOTIVE DEBT CUT
Ford trimmed automotive debt by $7 billion in the second quarter and expects to further reduce its debt. It ended the quarter with $27.3 billion of automotive debt.
Ford, the only large U.S. automaker to avoid bankruptcy in 2009, borrowed more than $23 billion in 2006 to fund its turnaround, leaving it with a heavier debt load than rivals General Motors Co and Chrysler.
Ford's balance sheet has been the major investor concern for an automaker that has gained market share and largely eliminated the gap in quality and vehicle resale values against competitors led by Toyota Motor Corp.
Bernie McGinn, president of McGinn Investment Management, who holds Ford shares, expects the automaker to sell more stock to shore up its cash position.
That would initially be seen as negative, but it would be done to repair the balance sheet, said McGinn. He believes Ford is still in the early stages of its recovery. Who would have thought even a year ago that U.S. automakers would be cash generators?
Analysts have said that with IPOs expected from GM, Chrysler and auto parts maker Delphi in the coming months, and a possible secondary offering from Ford, there is a risk of overloading investor demand, despite signs of a slow recovery in auto demand.
Ford Chief Financial Officer Lewis Booth said working down automotive debt was still very urgent, but declined to say whether Ford had near-term plans for additional actions.
Asked if Ford planned a secondary share offering, possibly in the second half of the year, as part of its debt-reduction efforts, Booth said it was not in our plans, but also said he would not disclose it if it were.
'STILL A BIT SKITTISH'
Second-quarter net profit rose to $2.6 billion from $2.26 billion a year earlier. Earnings per share fell to 61 cents from 69 cents due to an increase in outstanding shares. Revenue rose $4.5 billion to $31.3 billion.
Earnings from operations, excluding one-time items, were 68 cents a share. On that basis, analysts on average expected 40 cents, according to Thomson Reuters I/B/E/S.
Ford cut the top of its U.S. auto industry sales forecast for 2010. It expects industrywide sales of 11.5 million to 12 million vehicles, including medium and heavy trucks, down from a prior forecast of 11.5 million to 12.5 million.
I'd say the consumer is still a little bit skittish, but I'd say July is off to a better start, Booth said.
The automaker's share of the U.S. market jumped to 17 percent in the first half of 2010, up 1.5 percentage points from a year earlier, and Ford expects to increase its share in 2010.
One sign of that momentum: Ford was No. 2 in sales in California through the first half of the year, behind Toyota and ahead of Honda Motor Co Ltd, according to statistics released Friday by the state's auto dealers association.
Ford reported operating profits on autos in every region in the second quarter, and Ford Motor Credit posted an $888 million pre-tax operating profit.
The automaker plans to discontinue its Mercury brand and expects to complete the sale of Volvo to China's Geely in the third quarter. It intends to focus on its mass market Ford and luxury Lincoln brands.
Ford said negotiations with the roughly 1,700 Mercury dealers had been fruitful and the automaker had signed agreements with about 700 so far. More than 1,400 of the Mercury dealers are connected to Ford dealers.
Cash flow from its automotive operations was $2.6 billion in the second quarter, and Ford ended the quarter with gross cash in the automotive business of $21.9 billion after executing debt-reduction plans.
Ford expects to move from a net automotive debt position to a net cash position by the end of 2011, eliminating the $5.4 billion deficit between cash and debt. That would be one of several steps toward restoring an investment grade credit rating.
(Reporting by David Bailey; Additional reporting by Bernie Woodall; Editing by Derek Caney and John Wallace)