No miss this time: Ford (NYSE: F ) revealed today that it earned $2.55 billion in the first quarter, or $0.62 a share excluding some items. That's a $466 million increase (22%) over the company's (very good) year-ago result and its seventh consecutive profitable quarter.
How good is that? Good enough to blow away the consensus estimate of $0.50 and stand as the Blue Oval's best quarterly profit since 1998 -- a hearty improvement over last quarter's somewhat disappointing results.
And that's not even the best news.
Strong results, stronger trends
For the most part, today's earnings release was wall-to-wall good news for shareholders:
- All of Ford's regions including its long-troubled European division were solidly profitable.
- Ford's debt load was reduced by $2.5 billion during the quarter. The company's "automotive debt" -- meaning the debt that isn't part of Ford Credit's operations -- is down to $16.6 billion. Ford's spending on interest payments has dropped significantly.
- "Automotive cash" -- again, meaning cash on hand outside of Ford Credit -- rose to $21.3 billion, an increase of $800 million, despite the debt reduction and despite aggressive investments in product development.
One minor negative note: As I noted yesterday, Ford's market share slipped a bit, which I suspect (and Ford's executives hinted) was because of aggressive incentive spending by General Motors (NYSE: GM ) during the quarter. But a lot of positive trends are coming together right now for Ford, almost as if CEO Alan Mulally planned things this way. Nearly all of Ford's vehicles are new or recently refreshed, and nearly all sparkle with appealing high-tech features and fuel-efficient drivetrains. Ford is almost perfectly prepared to take advantage of an environment where fuel prices are soaring and key competitors such as Toyota (NYSE: TM ) and Honda (NYSE: HMC ) have been forced to cut production.
There are other trends at work as well. During a conference call for media and analysts, CFO Lewis Booth repeated the phrase "higher net pricing and favorable volume and mix" over and over as he discussed results in different segments and different parts of the world. In plain English: Ford is able to get more money for its products thanks to higher prices and reduced incentives, sales are up (volume), and buyers are favoring more heavily optioned (and thus more profitable) vehicles (mix).
These underlying trends are a big deal, arguably even more important news than the company's gaudy quarterly numbers. Higher gas prices have been driving consumers toward smaller vehicles, which in general are less profitable than larger ones -- a source of concern. But while Ford doesn't generally discuss per-model margins, Booth did acknowledge during the call that Ford has been able to close that gap somewhat.
Part of that is because of the company's "One Ford" strategy, driving big savings through global economies of scale. But part is also because of a consumer trend toward more heavily optioned cars: Mulally noted that one of the hottest options on the small, inexpensive Fiesta is heated leather seats, a sign that even small-car buyers are willing to pay for extras.
A promising outlook
While many automakers are struggling with parts shortages in the wake of the Japan disaster, Mulally reiterated his view that the Japanese crisis would have "no material impact" on Ford's earnings. Ford anticipates some minor disruptions of production in Asia, but no significant impact in North America and elsewhere. But the company does anticipate that its major Japanese competitors will be operating at sharply reduced capacity until late 2011 at the earliest.
Will they increase production to take advantage? One of Mulally's refrains is that Ford needs to "match production to demand" -- to be able to make enough cars to satisfy demand, but to scrupulously avoid the traditional Detroit problem of overproduction followed by discounts.
But clearly the stars are aligning in Ford's favor at the moment. And that means shareholders have big reasons to be optimistic about Ford's prospects over the next few quarters.
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