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Ford beats 3Q forecasts
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October 18, 1999: 2:35 p.m. ET
Net income up 11% despite continued difficulty in Europe, South America
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NEW YORK (CNNfn) - Ford Motor Co., the nation's No. 2 automaker, posted an 11 percent increase in third-quarter profits Monday, beating Wall Street's forecasts despite continued difficulty selling its products in Europe and South America.
Ford (F) earned $1.11 billion, or 90 cents per diluted share, on an operating basis, up from $1.00 billion, or 80 cents per share, in the year-earlier quarter. Analysts polled by First Call had forecast per-share earnings of 85 cents for the latest quarter.
Revenue rose 16.3 percent to $37.98 billion.
Another sign of Visteon spin-off
The latest results include a $125 million charge to pay for retirees' health and insurance plans at its Visteon auto parts unit, and $100 million in after-tax employee separation costs.
The Visteon charge is another indication that the division is about to be spun off or sold, Wayne Booker, the chief financial officer admitted.
"It would not have been material when looked at the total Ford balance sheet, but it is material when you look at the Visteon balance sheet," Booker said at a news conference.
But Booker said the company would not make additional comments on the plans for the division until a tentative contract with the United Auto Workers union is ratified by the rank-and-file. There has been great opposition to the spin-off by members at Visteon, who make up about a quarter of the 100,000 UAW members at Ford.
Even with the $225 million in charges, automotive earnings rose 6.8 percent to $690 million in the quarter, while income from financial services rose 19.4 percent to $424 million. The North American auto market is very strong, and Ford found itself selling its full capacity of some of its most profitable light truck models with little need for incentives.
Troubled results overseas
But the company's overseas operations continued to have problems. Automotive operations in Europe caused a $171 million loss in the quarter, compared with $273 million a year earlier, and the company admitted it will not meet its goal to improve on last year's results in Europe.
In South America, a weak local economy in Brazil led to losses in the quarter of $72 million, compared with $44 million a year ago. Booker gave no indication of a quick turn around in either Europe or South America.
"I don't think you'll see a turnaround in 2000," he told reporters. "Brazil seems to have stabilized, but we have a number of new entries (competitors) coming into Brazil."
"In the case of Europe, it's not a short-term solution either," he said, as he mentioned capacity reductions announced last week there. "There will be a number of steps. My guess is it's two to three years away from an absolute solution."
Strength in sales mix
Despite beating earnings estimates, the results were not a big surprise for analysts after the earnings of General Motors Corp. (GM) announced last week showed the strength of the North American auto market.
"They beat our top line assumptions," said Michael Pak, automotive analyst with ING Barings, talking about the company's revenue showing. "We had the strong build rates, but the overall mix, with the low fleet sales, meant the quality of those revenues were underestimated."
The problems overseas were not a surprise to Wall Street, Pak said.
"I think management is on the problem," he said. "They're going to have to adjust capacity and take out significant costs."
Charges coming for labor pact
Ford expects to account for additional costs from its new labor agreements in the fourth quarter, according to Booker.
Booker, in a conference calls with analysts and reporters, didn't specify how much those costs could be. The company, along with GM and DaimlerChrysler AG (DCX), reached new labor agreements with the United Auto Workers union and the Canadian Auto Workers in the quarter, although the UAW agreement at Ford still needs membership ratification.
Ford reached a company record for cash on the balance sheet of $25.7 billion in its automotive operations. But Booker said it's important for the company to have that in case of a downturn in sales, or to use in future acquisitions. He wouldn't rule out a stock buyback program, but was not encouraging investors to look for that to happen.
"We're under no strong pressure from the board to implement a stock buyback," he said.
For the first nine months of the year, net income was $5.43 billion, or $4.39 a share, compared with $20.03 billion, or $16.90 in the year-earlier period, when results included earnings from The Associates subsidiary and a gain on the sale of The Associates' during that period. Without the results from The Associates, the company's income for the period was $5.0 billion, or $3.94 a share.
Revenue for the year-to-date rose 11 percent to $118.14 billion.
Ford's stock gained 7/8 to 51-7/16 in Monday midday trading. 
-- Reuters contributed to this report
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