Ford trims losses, nearly breaks even

NEW YORK (CNNMoney.com) -- Embattled automaker Ford Motor trimmed losses in the third quarter to post near-break even operating results, despite a sharp drop in U.S. sales in the period.

Ford (Charts, Fortune 500), which lost its long-held position as the nation's No. 2 automaker to Toyota Motor (Charts) in the quarter, lost only 24 million, or 1 cent a share, on continuing operations excluding special items.

Ford trimmed losses in its North American auto unit and posted improved earnings overseas to nearly break even on an operating basis in the third quarter.

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That is much better than the forecast of a 46-cent-a-share loss from analysts surveyed by earnings tracker Thomson First Call, and an improvement over the loss of $850 million, or 45 cents a share, on that basis a year earlier.

Shares of Ford were up about 5 percent just after the open Thursday following the report before retreating to be up only 2 percent in late-morning trading, as the broader market retreated on broad economic concerns.

Including special items and discontinued operations, Ford posted a net loss of $380 million, or 19 cents a share, a huge improvement from the net loss of $5.2 billion, or $2.79 per share, a year earlier, when it was in the process of closing factories and offering hourly workers lucrative packages to retire or leave the company.

Ford officials said the improvement in operating results is a sign that their turnaround plans are on track. They say that they should be able to return their North American auto operations to profitability in 2009, even though they see a weak housing market and high oil prices continuing to keep American car buyers' demand for cars and light trucks sluggish through next year and into 2009.

"We remain committed to our plan and the results we're seeing this year give us confidence we're on track," said Ford CEO Alan Mulally in a call with investors Thursday morning. "None of us have a crystal ball. There's a lot of things going on in market place. But we're not going to get behind. We're going to take the actions we need to meet real demand."

David Healy, auto analyst at Burnham Securities, said he was impressed with the Ford results, and he believes the company should be able to hit its targets, even with sluggish auto sales.

"They're going to have to make damn sure they don't shrink any further," Healy said. "But their cost cutting is coming better than expected, so I think they've got a pretty good shot at it." He said he expected to raise his earnings estimates for Ford going forward, given these results.

Neither Mulally nor Ford Chief Financial Officer Don Leclair would answer repeated questions whether more staff cuts and buyouts would be part of the company's efforts to adjust to the lower demand. They said they would not answer questions related to the tentative labor agreement reached early Saturday morning with the United Auto Workers union, other than to say it would allow the company to continue to move towards its goal of cutting $5 billion off its 2005 cost base by 2008.

They said they would only comment on the plant closing and staffing plans in light of the deal once more than 50,000 rank and file UAW members at Ford complete the ratification process, likely early next week.

Under the deal Ford will shift responsibility for tens of billions of dollars in retiree health care costs to a union-controlled pension fund. Ford was the only one of the U.S. automakers to reach a deal this fall without a short strike by the UAW. But some experts have questioned whether Ford gave up too much in job guarantees to win the agreement.

Revenue rose to $41.1 billion from $37.1 billion, helped by better pricing, product mix and currency exchange rates. Its automotive revenue rose 11.7 percent to $36.3 billion, topping First Call's forecast of $33.2 billion.

Ford posted a $1.1 billion increase in North American auto revenue, even though it sold 18 percent fewer vehicles in the United States in the quarter compared to a year earlier. Much of that decline was due to Ford's decision to cut less profitable fleet sales to businesses, particularly rental car companies.

Leclair said that Ford's moves to limit production and capacity to better reflect its lower market share was a key to getting better pricing.

Still even with the improved revenue, the company's core North American unit had a pre-tax operating loss of $1 billion in the quarter, although that was an improvement from a $2.1 billion loss a year earlier.

Its Premier Auto Group, which includes European-based brands that sell to the U.S. market, also trimmed its loss from a year earlier. Operations in each of its overseas regions - South America, Europe, Asia-Pacific and Africa - reported higher profits.

But those overseas gains were not enough to overcome the losses in North America. The company's worldwide auto operations reported a pre-tax operating loss of $362 million, an improvement from the $1.9 billion loss a year ago.

What helped take the company to near break-even results was a $556 million pre-tax profit from its financial services operations, primarily its Ford Credit unit. That figure was down from the $730 million that Ford's financial services operations earned a year ago. But Ford Credit, which focuses mostly on auto financing and does not have a home loan operation, wasn't hit by the large subprime mortgage losses that racked rival GMAC.

The company did not offer any specific earnings guidance, although it said full-year pre-tax results range of a small loss to breakeven, excluding special items, even as losses continue in the fourth quarter on a pre-tax basis for the company as a whole and the auto unit, due to ongoing losses in North America.

Company executives said they now expect to conclude an agreement to sell two of its European brands - Land Rover and Jaguar - by early next year at the latest. But they also said they expect to hang onto Volvo, which Ford had been looking at possibly selling in a recently completed review. Instead of selling Volvo, the company said it will look at a turnaround plan to stem losses, which it will start to detail separately in 2008.

"We'll continue to review the portfolio on a periodic basis," said Mulally when asked if Ford was committing to Volvo for the long-term. "But the focus now is improve its productivity and cost structure."

Healy said that the reduced losses at Ford were reducing the pressure on the company to sell assets as it has been doing.

"They don't have to have a fire sale at Volvo," he said.

The results are much better than the report Wednesday from No. 1 U.S. automaker General Motors (Charts, Fortune 500), which showed a much larger than expected loss in the period, along with a $39 billion charge that produced one of the biggest losses in U.S. corporate history.