It's been more than a year since Ford (NYSE:F) last reported earning a quarterly profit, and if new CEO Alan Mulally knows what he's talking about, the company won't post an annual profit until 2009. So is there any good news we can hope to see in the second-quarter 2007 earnings report out Thursday?

What analysts say:

  • Buy, sell, or waffle? Fifteen analysts follow Ford, which gets three buy ratings, seven holds, and five sells.
  • Revenue. On average, analysts predict a sales slide of 1% to $37.4 billion.
  • Earnings. Losses per share are expected to move to $0.35 from $0.03 last year.

What management says:
Ford issued its June sales update earlier this month, crowing over its first year-over-year increase in monthly sales since October 2006. Check that -- actually, it was only the first increase in retail sales. Thanks to lower fleet sales to car rental companies (down 39% year over year), the company actually posted an 8% decline in total unit sales.

The good news: Sales to rental companies generally carry lower margins, so if you absolutely, positively must lose sales -- this is the place to let them slide.

What management does:
Ford actually posted a small operating profit last quarter, which helped to pull its rolling operating and net margins back toward breakeven. Even so, on an operating basis, Ford remains the only one of the "Big Six" automakers posting negative operating margins over the past year. DaimlerChrysler (NYSE:DCX) got roughly 3%, GM (NYSE:GM) more than 4%, and each of Nissan (NASDAQ:NSANY), Honda (NYSE:HMC), and Toyota (NYSE:TM) is north of 7%.

Credit for Ford's improvement, however, lies entirely with the company's improved gross profit. With Q1 sales rising 5% in comparison with Q1 2006, but cost of goods sold falling 5%, Ford's gross margin spiked.

A 37% increase in selling, general, and administrative expenses then did its best to eat up the extra profit, and when that failed, interest on Ford's $28 billion in long-term debt ensured the company would remain mired in the red, as per Mulally's prediction.





























All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Much has been written of Ford's need to raise cash -- not just "earn cash profits for its shareholders," but actually raise cash to pay its bills, meet its loan obligations, and finance its restructuring. It's this urgent need for cash that convinced the company to sell off its Aston Martin subsidiary last quarter, and that may convince it to part ways with Volvo, Land Rover, and/or Jaguar in the future.

In that regard, I think it behooves an investor to keep an eye on the place this company will need to raise cash from once it runs out of things to sell: its operations. Mulally's company did an admirable job on this front last quarter as it increased cash flow from operations and slashed capital spending, but from a longer-term perspective, say over the past six months, the numbers still look worrisome. Against a 4% decline in sales, Ford's inventories headed the other way -- and twice as fast (up 8%). The way I see it, this means that Ford's oft-reported production cuts still aren't taking effect fast enough to keep up with its sales slowdown. Unless Mulally can get sales turned around right quick, I'd anticipate seeing further production cuts, plant closings, layoffs -- and charges to earnings for all the above -- in Ford's future.

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Fool contributor Rich Smith does not own shares of any company named above. Nissan is a Global Gains recommendation. The Motley Fool has a disclosure policy.