NEW YORK (CNN/Money) -
Ford Motor Co. more than doubled Wall Street's first-quarter earnings expectations Wednesday and said it is poised for better than expected full-year results as well.
The nation's No. 2 automaker earned $1.98 billion, or 96 cents a share, excluding special items, which compares with the $896 million, or 45 cents a share, it earned a year earlier. Analysts surveyed by earnings tracker First Call forecast EPS would slip to 44 cents. Even including special items, Ford posted net income of $1.95 billion, or 94 cents.
The company said it now expects to earn 30 to 35 cents in the second quarter, up from 22 cents a share it posted a year earlier. That's roughly in line with First Call's forecast of 34 cents in the quarter. Ford also raised its full-year guidance to a range of $1.50 to $1.60 per share from its earlier target of $1.20 to $1.30. First Call's 2004 forecast is $1.28.
Shares of Ford (F: up $1.22 to $14.78, Research, Estimates) climbed almost 10 percent in by mid-afternoon following the report.
Analysts questioned Ford executives during a conference call whether even this more bullish guidance was too conservative, given by how wide a margin the company beat first quarter forecasts and its previous EPS guidance of 40 to 45 cents for the just completed period.
Chief Financial Officer Don Leclair said that 24 cents of the 30-cent rise in the company's full-year guidance was due to an improved outlook at Ford Credit, including lower loan losses and higher value of cars taken in when a lease is complete. The other 6 cents is due to a lower tax rate, primarily due to the new Medicare prescription drug program.
Both Ford and rival General Motors Corp. have significant retiree health care cost obligations, and Leclair said that Ford could save $250 million a year from the new program. GM cited the change in Medicare when it raised its guidance and beat results Tuesday.
Still even though the company's automotive unit's results were not a factor in the company's raised guidance, Ford's auto sales and profits showed a strong improvement around the globe. The company's auto operations produced more income than its Ford Credit unit for the first time in four years.
Ford's core North America automotive unit saw pre-tax earnings of $1.96 billion, up from $1.2 billion a year earlier. It achieved that despite lower U.S. sales.
It attributed the improved results to favorable cost performance, improved vehicle mix and favorable net pricing, which reflects car prices less the cost of marketing such as incentives. The company saw the average net pricing actually increase. Revenue from the unit rose to $23.3 billion from $22.2 billion despite the drop in vehicles sold.
"What we're trying to do is substitute low margin vehicles out, (those sold to) rental (car companies), the small pickups, and replace them with attractive vehicles," said Leclair. "As we do that, we should see profits improve without volumes improving."
Ford saw its auto units in Europe, South America and the Asia-Pacific regions post narrow pre-tax profits excluding special items, following losses in all three regions in the year-earlier period. Europe showed the largest turnaround, posting a pre-tax profit of $5 million, excluding special items, compared with a pre-tax loss of $247 million in the first quarter of 2003.
The company's premier auto group, which includes brands such as Land Rover, Jaguar and Aston-Martin, also turned a pre-tax profit following a year-earlier loss.
Ford Motor Credit Co. saw net income rise 56 percent to a record $688 million in the first quarter. And Hertz, its rental car unit, narrowed its loss to $7 million compared with a $59 million loss a year earlier. It said it saw stronger rental demand in the period.
Overall revenue rose to $38.8 billion from $34.2 billion a year earlier.
How real is auto turnaround?
Leclair said that despite improvement in the company's core auto sales, it's too soon to say that turnaround will continue throughout the year, particularly due to a number of large model changeovers and some plant closings and openings scheduled for later this year. He suggested that Ford could change its outlook once again once it reports second quarter results in three months.
"I think the best thing for us to do now to say we're on track. There could be a little upside, but in my mind it's too early to call given the uncertain state of economy and the competition," he said.
Some analysts questioned whether there were some accounting procedures that inflated Ford's profit for the one quarter, such as the costs of various sales incentive programs.
"The performance is too good to be true," wrote Credit Sights analyst Michael Ward, comparing Ford's first quarter to its disappointing fourth quarter auto results. "The auto business simply doesn't change that quickly."
Others said they believe that Ford's result is a sign of real improvement at the automaker, and said they expected to raise their full-year estimates beyond Ford's new guidance.
"I think all of us on Wall Street were misled not only by the company's first quarter guidance, but also by fact back in the fourth quarter, their North American margins were disappointing and terrible," said Burnham Securities analyst David Healy. "I think there's real strength here, but a lot of good things were concentrated in the first quarter."
Leclair and Chairman William Clay Ford said the company is committed to being able to overdeliver on what it promises to investors. Ward said that given the major plant changes planned by Ford over the next six months, it makes sense for the company to try to reign in expectations.
"There's a lot of risk in there," he said. "If I had that big of a business changing over I would be conservative."
Neither Ward's nor Healy's firms have any investment banking relationship with Ford. Healy does not own shares of Ford. Ward is a long-time Ford shareholder.
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