Ford's Automotive Margin Improves
15 July 1998
Ford's Automotive Margin Improves to 6.6%, Driving Second Quarter Earnings to $2.4 Billion, Up Seven Percent
DEARBORN, Mich., July 15 -- Ford Motor Company
earned $2.4 billion in the second quarter of 1998, or $1.91 per diluted share
of common and Class B stock. Earnings were up seven percent on a comparable
basis with the year earlier period. Ford also delivered its best-ever
quality, sixth consecutive quarter of lower total automotive costs at constant
volume and mix, and ninth consecutive quarter of higher profits on a
comparable basis with the year earlier period.
"We've built a very strong competitive position by focusing on delivering
value to our customers and shareholders," said Ford Chairman and CEO Alex
Trotman. "Our Ford 2000 strategy continues to deliver industry-leading
products and fundamental operating improvements."
Ford's consistently improving financial results have helped the company's
shareholder returns outperform the broader market. The company's total return
to shareholders in the first half of the year was 86 percent, compared with
18 percent for the S&P 500 index.
Second quarter 1998 earnings increased $148 million, or seven percent,
from the second quarter of 1997 on a comparable basis. Ford reported second
quarter 1997 earnings of $2.53 billion, or $2.06 per share, however, earnings
comparable with the current quarter are $2.23 billion, or $1.82 per share.
These comparable results exclude a net one-time gain of $100 million, or
eight cents a share, and Ford's share of the earnings of Associates First
Capital .
The net gain stemmed from a gain of $269 million related to the initial
public offering of 19.1 percent of The Hertz Corporation , offset
partially by a $169 million charge for manufacturing realignments and the sale
of Ford's heavy truck business.
The Associates, which contributed $197 million, or 16 cents per share, to
Ford's second quarter 1997 earnings, was spun-off to Ford shareholders on
April 7 of this year.
AUTOMOTIVE OPERATIONS EARN A RECORD $2.1 BILLION
Worldwide net income from automotive operations was a record $2.1 billion
in the second quarter, up from $1.7 billion in the second quarter of 1997.
Last year's results included the $169 million charge. After-tax return on
sales (ROS) was 6.6 percent, up 1.3 points from last year and Ford's best
automotive ROS since the first quarter of 1989.
Total automotive costs were reduced by $900 million, at constant volume
and mix, compared with the second quarter of 1997. Total automotive cost
reductions in the first half of 1998 were $1.3 billion, exceeding Ford's full-
year milestone of $1 billion.
North America: Automotive earnings were a record $1.7 billion, up
$214 million from a year ago, and ROS was 7.3 percent, versus 6.2 percent.
For the first half, ROS was 6.2 percent, versus 5.5 percent last year. The
full-year milestone is to achieve a five percent ROS in North America.
"We're on-track to beat our full-year milestone in North America," Trotman
said. "Our strong product line up, great quality and continued focus on
reducing costs have allowed Ford to expand its automotive margins, despite
high levels of incentive spending in the industry."
During the quarter, J.D. Power & Associates, in its Initial Vehicle
Quality Study, reported that Ford had the three highest-ranked assembly plants
in North America -- St. Thomas, Ont.; Chicago Assembly Plant; and the Michigan
Truck Plant. The study ranked Ford Expedition as the highest quality truck
overall and named three Ford Motor Company products -- Expedition, Ford Escort
and Lincoln Navigator -- as "Best in Segment" vehicles. Separately, the
company and the United Auto Workers were honored by J.D. Power with an award
for cooperation in improving vehicle quality.
Europe: Automotive earnings were $310 million, up $153 million from a
year ago. First half earnings totaled $540 million, up $278 million from a
year ago. Ford is on track to post positive results for the full year,
meeting the 1998 milestone for Europe.
"We're responding to the brutally competitive market in Europe by steadily
improving quality, launching exciting new products and lowering costs through
great teamwork," Trotman said.
South America: Automotive earnings were $14 million in the second quarter
of 1998, compared with earnings of $25 million a year ago. First half losses
totaled $31 million, versus losses of $22 million a year ago. Ford's 1998
milestone for South America is to break even for the full year.
"It will be hard to achieve our milestone in South America, but we are not
stepping back from our objective," Trotman said.
Visteon: The earnings of Visteon Automotive Systems, Ford's automotive
systems and components enterprise, are included in the company's current and
historical automotive results. In the second quarter of 1998, Visteon earned
$241 million, compared with $210 million a year ago, up 15 percent.
FINANCIAL SERVICES
Financial Services earnings reflect primarily the results of Ford Credit
and Ford's share of the earnings of The Hertz Corporation.
Ford Credit: Earnings were up seven percent to $300 million in the second
quarter of 1998 from $279 million a year ago. The earnings increase was due
to higher portfolio yields and lower credit loss reserve requirements, offset
partially by higher depreciation expense for leased vehicles. Earnings in the
first half of 1998 were $578 million, versus $555 million a year ago.
"Ford Credit's results have improved relative to last year, and are up
four percent in the first half. While it will be difficult to achieve the
1998 milestone of growing full-year earnings by 10 percent or more, that
remains our objective," Trotman said.
Hertz: Earnings were a record $75 million in the second quarter of 1998,
compared with $54 million a year ago, up 39 percent. Ford's share of Hertz'
second-quarter 1998 earnings was $60 million.
SUMMARY OF SECOND QUARTER 1998 COMPARED WITH 1997
Overview
-- Net income was $2,381 million, or $1.91 per diluted share.
-- Second quarter 1997 net income, excluding a net one-time gain of $100
million and earnings of $197 million from Associates First Capital, was
$2,223 million, or $1.82 per diluted share.
-- Reported second quarter 1997 net income was $2,530 million, or $2.06
per diluted share.
-- Worldwide sales and revenues were $37,289 million, compared with
$40,265 million.
-- Stockholders' equity was $23,070 million, down $6,043 million,
reflecting primarily The Associates spin-off.
Automotive Segment
-- Worldwide automotive net income was $2,051 million, compared with
$1,735 million.
-- Earnings from North America were $1,655 million, versus $1,441 million.
-- Earnings from Europe were $310 million, versus $157 million.
-- Earnings from South America were $14 million, versus earnings of
$25 million.
-- Worldwide after-tax return on sales was 6.6 percent, up 1.3 points.
Return on sales in North America was 7.3 percent, up 1.1 points.
-- Worldwide vehicle unit sales were 1,786,000, compared with 1,879,000.
-- Combined car and truck share in the U.S. was 24 percent, compared with
25.6 percent.
-- Combined car and truck share in Europe was 10.4 percent, compared with
11.7 percent.
Financial Services
-- Ford Credit earned $300 million, compared with $279 million.
-- Hertz earned a record $75 million, compared with $54 million. Ford's
share of second quarter 1998 earnings was $60 million.
Automotive Balance Sheet
-- Net cash was $14,056 million, compared with $9,865 million.
-- Cash and marketable securities were $22,276 million, compared with
$18,184 million.
-- Debt was $8,220 million, compared with $8,319 million.
-- Capital spending was $1,659 million, compared with $1,872 million.
Ford Motor Company and Subsidiaries
HIGHLIGHTS
Second Quarter First Half
1998 1997 1998 1997
(unaudited) (unaudited)
Worldwide vehicle unit sales of
cars and trucks (in thousands)
- North America 1,121 1,215 2,180 2,281
- Outside North America 665 664 1,327 1,279
Total 1,786 1,879 3,507 3,560
Sales and revenues (in millions)
- Automotive $31,309 $32,805 $ 60,385 $ 62,842
- Financial Services 5,980 7,460 13,488 14,737
Total $37,289 $40,265 $ 73,873 $ 77,579
Net income (in millions)
- Automotive $ 2,051 $ 1,735 $ 3,286 $ 2,739
- Financial Services 330 598 609 871
(excl. The Associates)
Subtotal 2,381 2,333 3,895 3,610
- The Associates - 197 177 389
- Gain on spin-off of The Associates - - 15,955 -
Total $ 2,381 $ 2,530 $ 20,027 $ 3,999
Capital expenditures (in millions)
- Automotive $ 1,659 $ 1,872 $ 3,760 $ 3,485
- Financial Services 153 140 251 266
Total $ 1,812 $ 2,012 $ 4,011 $ 3,751
Automotive capital expenditures as a
percentage of sales 5.3% 5.7% 6.2% 5.5%
Stockholders' equity at June 30
- Total (in millions) $23,070 $29,113 $ 23,070 $ 29,113
- After-tax return on Common and
Class B stockholders' equity 43.0% 36.5% 33.2% 29.5%
Automotive net cash at June 30
(in millions)
- Cash and marketable securities $22,276 $18,184 $ 22,276 $ 18,184
- Debt 8,220 8,319 8,220 8,319
Automotive net cash $14,056 $ 9,865 $ 14,056 $ 9,865
After-tax return on sales
- North American Automotive 7.3% 6.2% 6.2% 5.5%
- Total Automotive 6.6% 5.3% 5.5% 4.4%
Shares of Common and Class B Stock
(in millions)
- Average number outstanding 1,212 1,193 1,211 1,191
- Number outstanding at June 30 1,212 1,194 1,212 1,194
Common Stock price (per share)
(adjusted to reflect The Associates
spin-off)
- High $59-1/8 $26-25/64 $ 59-1/8 $ 26-25/64
- Low 41-27/64 20-3/64 28-15/32 20-3/64
AMOUNTS PER SHARE OF COMMON AND
CLASS B STOCK AFTER PREFERRED
STOCK DIVIDENDS
Income assuming dilution
- Automotive $ 1.65 $ 1.41 $ 2.65 $ 2.24
- Financial Services 0.26 0.49 0.49 0.71
(excl. The Associates)
Subtotal 1.91 1.90 3.14 2.95
- The Associates - 0.16 0.14 0.32
- Premium on Series B Preferred
Stock repurchase - - (0.07) -
- Gain on spin-off of The Associates - - 12.90 -
Total $ 1.91 $ 2.06 $ 16.11 $ 3.27
Cash dividends $ 0.42 $ 0.42 $ 0.84 $ 0.805