More good news from the House of the Blue Oval: Ford (NYSE: F) said on Friday that it earned $2.6 billion in the second quarter, a stronger-than-expected result driven by solid performance in all of Ford's global business units.

It was the best single quarter for Ford since 2004 and the company's best first half in over a decade. Ford continues to increase cash on hand ($21.9 billion) and decrease its debt ($27.3 billion) and now expects its cash to exceed its debt by the end of next year.

Great stuff, at least at first glance. But how do things really look under the hood?

Digging into the nuts and bolts
Notwithstanding that still-dramatic debt load, the details look quite solid. That $2.6 billion represented a $338 million increase over year-ago numbers, but Ford-watchers will recall that last year's number reflected a big bag of "special items" like debt shuffling that made things look rosier than they actually were.

But there's no asterisk needed on this quarter's numbers. Things are solid across the board:

  • All four of Ford's global automotive units reported profits, led by a $1.9 billion profit in North America, a $2.8 billion improvement (nope, that's not a typo) from the second quarter of 2009 and a $645 million jump from last quarter. Ford's market share continues to increase around the world;
  • Ford's European arm posted a $322 million profit, an increase of $265 million over last year and up $215 million over the first quarter;
  • Ford Credit, the automaker's captive financing unit, reported a pre-tax operating profit of $888 million, a $242 million improvement over year-ago numbers and a $60 million increase over last quarter's results;
  • Overall "automotive debt" -- Ford-speak for debt not related to its banking operations -- was reduced by $7 billion during the quarter, which will save the company over $470 million a year in interest payments.

Ford clearly continues to execute on its turnaround plan, and once again CEO Alan Mulally and CFO Lewis Booth repeatedly pointed out during the conference call that the company is well ahead of the (aggressive) targets set out in its plan.

So what's driving this success?

The secret to Ford's success
As is so often the case in the auto business, it comes down to the product: Ford's focus on building high quality vehicles and creating the cost structure needed to sell them at competitive prices is paying off. Long story short, Ford is selling more cars and trucks and making more money on each sale.

The profit-per-sale bit is important. Ford has held incentives to a reasonable level and upped margins by adding content -- creating gotta-have options. Options, of course, are where the big profits are in the auto biz, and Ford has made it a priority to create particularly desirable packages on nearly all of its models.

For instance, Ford has put huge resources into high-tech (and high margin) "infotainment" features in recent years, leveraging partnerships with tech giants like Microsoft (Nasdaq: MSFT) and Sony (NYSE: SNE) to create its SYNC "infotainment" suite. SYNC, which is an elegant combination of audio, communication, smartphone-integration, and navigation features, is available on most Ford models (including entry-level vehicles like the Fiesta) in the U.S., and has proven to be a helpful differentiator in comparisons with key competitors like General Motors, Toyota (NYSE: TM), and Honda (NYSE: HMC).

The outlook
The next two quarters are likely to be somewhat less impressive, if only because of the natural rhythms of Ford's business -- production numbers tend to dip in the third quarter as plants are shut down to switch over to new-model-year tooling, and spending tends to go up in the fourth quarter as those new models are launched and marketed. Neither of those things should be cause for concern on the part of Ford investors.

Other things to watch out for? As Mulally noted in the call, growth is moderating in Asia and spending remains subdued in the U.S. and Europe, all of which will tend to mute results somewhat. On the flip side, commodities prices are likely to rise as the recovery continues to take hold, which will obviously impact Ford's costs. Meanwhile, the company continues to do its thing: Focusing on building good cars and trucks that people want, streamlining costs around the world, and being aggressive (but prudent) in paying down that big pile of debt.

Speaking as a Ford shareholder, that sounds pretty good to me.

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