Ford Finishes First Phase of Five-Year Turnaround Bid, on Track to Meet Pretax Profit

DETROIT May 19, 2004; John Porretto writing for the AP reported that Ford Motor Co. has successfully completed the first phase of a five-year turnaround bid, and the automaker remains on track to post a $7 billion pretax profit in 2006, company executives told Wall Street analysts Wednesday.

Top executives, meeting with analysts at the automaker's world headquarters in the Detroit suburb of Dearborn, also said they've seen no major shift away from large trucks, sport utility vehicles or premium models because of rising fuel prices or concerns over climbing interest rates.

"The evidence is mixed," said vice chairman Allan Gilmour, noting that truck sales were below expectations last month but that it was too early to predict May's outcome.

The automaker began a restructuring in January 2002, when it was mired in losses. The gist of the plan called for cutting 35,000 jobs and reducing manufacturing capacity, areas in which the company has made steady progress.

Chairman and chief executive Bill Ford said the company had improved its financial results, excluding special items, by $5 billion in the past two years, ahead of targets.

It posted a pretax profit of $3.4 billion in 2003 and projects a pretax profit of $4.4 billion to $4.7 billion this year.

In the most recent quarter, Ford's $1.9 billion profit not only doubled the Wall Street consensus forecast, it topped first-quarter earnings of larger rival General Motors Corp.

"Overall, I'm very pleased with our progress, and I'm proud of the results that our team has delivered," said Ford, reiterating much of the message he delivered at last week's shareholder meeting in Louisville, Ky.

"The first phase of our plan, which is to stabilize the business and get it back on sound footing, is over," he said. "But we know that our job still is far from over."

Despite somewhat sluggish sales to start the year, Ford executives said they were sticking with an earlier forecast for industry volume of 17 million new vehicles in the United States in 2004, up from 16.7 million in 2003.

Ford has been conservative recently when offering guidance on its earnings and cost-cutting expectations, keeping with a pledge to "under-promise and over-deliver."

Last month, the company boosted its full-year earnings guidance by 30 cents to a range of $1.50 to $1.60 a share. Some analysts say the new prediction remains conservative given that Ford earned 96 cents a share in the first quarter.

"It could put Ford in a difficult position of trying to explain to investors just why the remaining three quarters of the year should be nowhere near as profitable as the first quarter, while maintaining a position that the revitalization plan is indeed on track," Credit Suisse First Boston analyst Chris Ceraso said in a research note this week.

Chief financial officer Don Leclair said one factor for the anticipated slowdown in earnings in the second half of 2004 is the effect of consumer incentives, which have risen in the past month as automakers try to rid themselves of bloated inventories. The uptick followed a leveling off of financing and cash-back deals from roughly late last summer until March.

"April saw an acceleration of incentives, and the outlook for the balance of the year appears to be difficult," Leclair said.

During the presentations, chief operating officer Jim Padilla acknowledged the company's drop in U.S. market share so far this year, and said, "I can tell you it's very damn important we have share."

But Padilla also said Ford was not interested in "chasing" market share for the sake of adding share. Through April, Ford's U.S. sales were off 2.7 percent from a year ago, and its market share was off a little more than 1 percentage point to 19 percent, according to Autodata Corp.

Ford officials have said the dip in business can be attributed to a reduction in high-volume but low-margin sales to daily-rental fleets.

"We're in it for profitable share," Padilla said.

Bill Ford said the company had a strong automotive cash position of $26.5 billion. But he noted several challenges, such as the continued rise of health care costs, the intense pricing environment and currency fluctuations that have hampered results in some parts of the world.