Ford's 2nd-quarter profit up 6%

It beats expectations; GM doesn’t as it grapples with recalls

Friday, July 25, 2014

DEARBORN, Mich. -- Ford Motor Co. on Thursday beat Wall Street's expectations in the second quarter as it chalked up a record profit in North America and made money in Europe for the first time in three years.

Competitor General Motors Co. managed to post a second-quarter profit, but it missed analyst estimates. GM said it will spend at least $400 million to pay victims among the drivers of 2.59 million compact cars with a potentially faulty ignition switch linked to at least 13 deaths.

Things will get leaner in the second half for Ford as it closes one of its U.S. pickup plants to prepare for the release of its new aluminum-sided F-150. Marketing expenses for new products, like the truck and the Ford Edge in the U.S. and the Mondeo and Focus sedans in Europe, will also take a bite out of earnings.

Ford, which earned $3.9 billion before taxes in the first half of this year, confirmed it expects full-year earnings of $7 billion to $8 billion. That's down from $8.6 billion in 2013.

"It's really a setup year for a step up in the business in 2015 and beyond,"Chief Financial Officer Bob Shanks told media Thursday morning at Ford's Dearborn headquarters.

For the April-June period, Ford's net income rose 6 percent to $1.3 billion. The profit, of 32 cents per share, was up from 30 cents per share in the same period a year ago.

Excluding separation costs in Europe and a $329 million impairment charge for its money-losing joint venture in Russia, Ford earned 40 cents per share. That beat analysts' forecast of 36 cents, according to FactSet.

Ford's revenue fell 1 percent to $37.4 billion but topped analysts' expectation of $36.2 billion.

Ford shares crossed $18 for the first time since early 2011 in morning trading. The shares rose 6 cents to close Thursday at $17.84.

Mark Fields, a company veteran who became Ford's chief executive officer on July 1, told analysts and media on a conference call that he intends to continue the strategy he helped develop with former CEO Alan Mulally. That means focusing on profitable growth, working closely between regions and speeding up vehicle development time.

"My message to our team internally, and now externally, is one of continuity but also acceleration of the plan," Fields said.

The results were less rosy at Ford's crosstown rival, GM, which posted a net profit of $190 million after absorbing $1.5 billion in recall-related costs. GM's shares fell $1.67, or 4.5 percent, to close at $35.74.

Profit at GM excluding one-time items was 58 cents a share, helped by redesigned pickups and large sport utility vehicles in the U.S. and improved sales in China, GM said Thursday in a statement. That compared with an average estimate of 59 cents from 14 analysts, according to data compiled by Bloomberg. The biggest U.S. automaker reported earning 84 cents on that basis a year earlier.

While GM took a one-time charge of $400 million for the victim compensation program, the automaker said it may rise to $600 million. Chief Financial Officer Chuck Stevens reiterated that Kenneth Feinberg, an outside lawyer who's managed similar funds for victims of the Sept. 11 terrorist attacks and the BP oil spill, will ultimately decide the cost of the program. GM won't cap how much money the program pays, Feinberg has said.

"There is no cap on the program," Stevens told reporters Thursday at the company's Detroit headquarters. "The objective of our compensation program, independently administered by Ken Feinberg, is to get all of the people that were impacted by the ignition switch issues through the compensation program."

GM turned to Feinberg to create the victim compensation program as its grapples with the largest crisis since emerging from government-backed bankruptcy reorganization in 2009. Congress and the U.S. Justice Department are both investigating why it took the automaker more than a decade to recall cars with switches that allowed the key to slip out of the "on" position, shutting off the engine and disabling air bags.

Feinberg will begin taking claims Aug. 1.

"This is an absurdly low amount," Bob Hilliard, a plaintiffs lawyer suing GM over deaths and injuries allegedly due to ignition-switch failures, said Thursday in an email. "GM knows the final number is certain to exceed $1 billion."

The nation's biggest automaker's net profit of $190 million came to 11 cents per share. A year ago GM made $1.26 billion, or 75 cents per share. Without one-time items GM would have made 58 cents per share, equaling Wall Street's expectations, according to data provider FactSet.

GM's revenue rose to $39.6 billion from $39.1 billion a year earlier, missing the $40.6 billion average estimate of six analysts. Net income fell to $278 million from $1.4 billion during the same quarter a year earlier.

Information for this article was contributed by Dee-Ann Durbin of The Associated Press and Tim Higgins of Bloomberg News.

Business on 07/25/2014