Ford's better idea: Surprise profit

NEW YORK (CNNMoney.com) -- Ford Motor drove well past forecasts Thursday as it reported an unexpected second-quarter profit, helped by gain in its overseas auto operations.

The nation's No. 2 automaker in terms of sales, Ford reported earnings from continuing operations $258 million, or 13 cents per share, excluding special items.

Ford still lost money in North America but improvements overseas allowed it to post a second quarter profit.

Photo Gallery See more photos

That's a improvement from the loss of $118 million, or 6 cents a share, in the same period a year earlier, and was far better than the forecast of a loss of 35 cents a share from analysts surveyed by earnings tracker First Call.

Shares of Ford (Charts, Fortune 500) gained 26 cents or 3.2 percent to $8.23 in morning trading.

Including all items, the company had net income of $750 million, or 31 cents a share, an improvement from the net loss of $317 million, or 17 cents a share, a year earlier.

"Our team is very encouraged by the significant progress we are making," said a statement from CEO Alan Mulally. "We recognize the challenges that lie ahead and remain fully committed to delivering our plan."

"We are not ready to declare victory. We will incur substantial losses in the third and fourth quarters, primarily in North America," Mulally warned during the call.

Still the company said it does expect automotive losses this year will be smaller than $5.1 billion operating loss at that unit in 2006, which is somewhat better than its previous guidance of a larger loss this year.

The company's global automotive revenue rose to $40.1 billion from $37.8 billion a year earlier. That was far better than First Call's consensus forecast of essentially flat sales of $37.5 billion.

The company said the gain primarily reflected currency exchange and net pricing improvements, which reflect the price of vehicles less marketing costs, including cash-back offers and other incentives. But those gains were partially offset by lower volume, as total vehicle sales fell to 1.77 million from 1.81 a year earlier.

The company's core North American auto operations continued to lose money, as it saw a pretax loss of $279 million. But that was an improvement from the loss of $789 million on that basis a year earlier. Ford attributed the improvement to cost cutting efforts and favorable net pricing. Ford has previously said it does not expect a return to profitability in its North American operations until 2009.

Ford did report strong results from overseas auto operations which allowed worldwide automotive sector profits to come in at $378 million. That compares with a pretax loss of $716 million a year earlier.

Ford Europe saw second-quarter pretax profit shoot up 42 percent to $262 million, while its Asia Pacific and Africa unit saw profits rise to $26 million from only $4 million a year ago. Ford South America saw its pretax profit shoot up 158 percent to $255 million.

But the biggest improvement overseas came in the Premier Auto Group, the luxury European brands that Ford is in the process of selling off as a way to raise cash. It reported swung to a pretax profit of $140 million from a pretax loss of $162 million a year earlier.

Ford confirmed Thursday it has stepped up discussions on the possible sale of Jaguar and Land Rover and is now "in discussions with selected parties who have expressed interest." Ford officials said it is now likely that those brands will be sold, although they discounted a rumor out of India Thursday that a sales announcement is imminent.

Ford has already sold Aston Martin, the high-end sports car brand that had been part of that group. The company is also conducting a review of what to do with the Volvo unit that is the other brand in PAG.

Wire service Reuters, citing a person familiar with the talks, reported Thursday that Indian automakers Tata Motors and Mahindra & Mahindra, along with U.S. buyout firms Texas Pacific Group and Ripplewood, were among those that expressed interest in the Land Rover and Jaguar unit. Ford officials wouldn't comment on potential buyers.

They also wouldn't comment on details of what the company would like to see in labor negotiations that started this week with the United Auto Workers union. The current contract ends Sept. 14, and Ford and other U.S. automakers are believed to be trying to figure out a way to shed $100 billion in liability for past promises of future retiree health care coverage.

Mulally said the company isn't worried that the unexpected profits will make it more difficult to win concessions and cost savings from the union.

"Everybody really does understand the situation we're in," he said in response to a reporter's question. "We have a lot of work to do to get back to profitability. Long term, we need to work on every element of our competitiveness. That's our focus. It's never a bad time to have a good quarter. We're very pleased we're making such great progress on the plan."

The improved results helped Ford survive lower profit in its financial services unit, as it earned a pre-tax profit of $105 million, down from $425 million a year ago.

Ford Motor has been losing U.S. market share to Asian competitors such as Toyota Motor (Charts) and Honda Motor (Charts) in recent years, but for the first half the year it is still hanging onto its long-held No. 2 ranking in terms of U.S. sales, behind only General Motors (Charts, Fortune 500), because of the sales of its overseas brands such as Volvo and Land Rover here. Its three domestic brands -- Ford, Lincoln and Mercury -- now trail Toyota's brands in U.S. sales.

DaimlerChrysler (Charts), which is in the process of selling its Chrysler Group brand, is No. 4 in terms of U.S. sales, having been passed by Toyota last year.