Ford earns US$1.7b in 3Q, pays down health-care debt

Ford Motor Company's third-quarter net income rose 68 per cent as it grabbed a bigger share of the United States auto market and buyers paid more for its highly rated cars and trucks.

It was Ford's sixth-straight quarterly profit and the company's best third-quarter performance since at least 1990.

Ford CEO Alan Mulally said popular new cars, such as the Ford Fiesta subcompact and Ford Edge wagon, and aggressive cost-cutting helped the company make money despite lower global sales.

The automaker said it expects to end the year with as much cash as it has debt, a year earlier than it had previously forecast.

Ford, which four years ago mortgaged its factories, blue oval logo and other assets to fund a huge restructuring, said it paid off US$2 billion in debt in the third quarter and expects to pay off an additional US$3.6 billion for retiree health care on Friday. Ford's debt will stand at US$22.8 billion after those two actions. It has US$20.3 billion in cash.

When Ford pays its debt to the United Auto Workers health-care trust, it will no longer owe the trust any money. The UAW agreed to the trust in 2007, and it began paying health-care benefits for 195,000 retirees and spouses in January. The automaker was paying a nine per cent annual interest rate on its obligation to the trust.

Ford also said it is launching an offer to convert US$3.5 billion in debt to common stock. The offer closes November 23.

Ford's earnings of US$1.7 billion, or 43 cents per share, beat Wall Street estimates.

Without one-time items, which included a US$102 million charge related to Ford's sale of Volvo, Ford would have earned 48 cents per share.

Analysts polled by Thomson Reuters had forecast earnings of 38 cents per share. Those estimates typically exclude one-time items.

In the same quarter a year earlier, Ford earned US$1 billion, or 26 cents per share.

Ford's quarterly revenues fell US$1 billion, or three per cent, to US$29 billion for the quarter. But Ford said if Volvo's 2009 revenues were excluded, revenues rose US$1.7 billion.

For the first three quarters of the year, Ford made US$6.4 billion. The company also said it expects all of its regions to be profitable in the fourth quarter and for all of 2011.

In the third quarter, Ford's European operations posted a US$196 million loss, compared with a US$131 million profit a year ago, but all other regions made money.

Ford Motor Credit Company, the group's auto-loan arm, made US$497 million for the third quarter and contributed US$1 billion to the parent company.

The Dearborn, Michigan, automaker offered to convert US$3.5 billion in bonds that pay 4.25 per cent interest to shares of common stock. The notes, held mainly by hedge funds and other institutional investors, were due in 2016 and 2036.

The company said it doesn't know how many debtholders will take the offer but, if all of them do, it will pay them off with 372 million in previously authorised shares that had not been sold.

Treasurer Neil Schloss said there should be no dilution of the current shares since the shares being used to pay the debt are already on the books.

Ford shares were down two cents to US$14.13 in morning trading.

Schloss said once Ford repays the UAW trust, it will have reduced debt this year by US$10.8 billion, saving roughly US$800 million in annual interest costs.

The figure does not include the US$3.5 billion in notes.

Despite the repayments, the company still must continue to work on its balance sheet, paying down debt as it generates operating cash, Chief Financial Officer Lewis Booth said.

Getting better prices

He said the company is getting better prices for its vehicles around the world, especially as it rolls out new models. Ford is either getting customers to pay higher sticker prices or it has reduced the amount of incentives it has to offer to get people to buy, Booth said.

"The strength of the product is propelling our business results," he said.

Booth also said raw material costs have risen US$1 billion this year over last, about what the company expected.

Despite the strong performance, Ford still faces challenges.

A Credit Suisse analyst wrote last month that the automaker's global pension funds were US$12 billion underfunded at the end of last year, and that could worsen to US$17.5 billion by the end of this year.

Analyst Chris Ceraso said that if tax discount rates expire and asset returns don't improve, Ford could be facing a US$900 million increase in pension expenses in 2011, shaving 15 to 20 cents per share off the automaker's earnings.

Ford has said it will make around US$1.5 billion in pension payments this year and next, and it doesn't expect the payments to significantly affect earnings.

- AP