As Ford continues its global restructuring efforts, the company saw its ongoing lopsided financial situation maintained for the first quarter of 2007, writes Global Insight analyst Aaron Bragman.

Operations at home posted another loss (although less than the year-ago period) while profits internationally continue to improve. For the first quarter of 2007, Ford posted a total global revenue of US$43.0 billion, up from US$40.8 billion in the first quarter of 2006. Despite the bump in revenue, Ford posted a net loss of US$282 million for the quarter, a significant improvement from the US$1.4 billion loss in the year-ago period.

Excluding special items, Ford lost US$171 million from continuing operations, a major change from the US$223 million profit from operations seen in the first quarter of 2006. Ford chalks the latest loss up to unfavourable volume and mix in the North American market, primarily. Ford Motor Credit posted a pre-tax profit of US$294 million, and profitability was reportedly in record territory for the Premier Automotive Group, with a pre-tax profit of US$402 million (compared to profit of US$152 million in the first quarter of 2006).

For North America, the results from automotive operations were less than stellar. For the first quarter, Ford North America reported a year-on-year (y/y) revenue drop from US$19.8 billion US$18.2 billion. That drop accompanies a worsening pre-tax loss of US$614 million, compared to a US$442 million loss in the year-ago period.

The rest of the world, however, fared much better for Ford. Ford of Europe posted a pre-tax profit of US$219 million for the first quarter based on revenues of US$8.6 billion, versus a US$65 million profit for the first quarter 2006 on revenues of US$6.8 billion. Ford explains the gain through improved volume and mix, partially offset by higher incentive spending.

Ford's South America region enjoyed a pre-tax profit of US$113 million on a US$100 million revenue improvement to US$1.3 billion total. This is down from the profit of US$137 million from a year ago, but does not include a gain from non-recurring hedging gains seen in the first quarter of 2006. Ford's Asia-Pacific and Africa region did not fare well, with a pre-tax loss of US$26 million, compared with a pre-tax profit of US$2 million one year ago. Ford blames unfavourable currency exchange and sales volume for the reduced performance.

Ford Credit continues to help the company's bottom line, with a net income of US$193 million, down from US$248 million seen a year earlier. Pre-tax, Ford Motor Credit earned US$294 million for the quarter from continuing operations, down from US$382 million in the year-ago period. Higher borrowing costs and higher depreciation for leased vehicles led to the decrease in performance, according to the company.

Outlook and Implications
Overall the results are somewhat stronger than expected, but rely almost entirely upon better performance in Europe and South America instead of a reversal of the slide under way in the North American market. For the United States, the US$1.6 billion loss in revenue is extraordinary, and starkly demonstrates just how much impact a net loss of 35,000 units of lucrative light truck volume can have. Excluding the new-for-2007 Ford Edge crossover-utility vehicle (CUV), the company dropped 60,000 units of U.S. truck volume in the first quarter compared to the year-ago period; the arrival of the Edge and 24,000 units there helped to mitigate the situation somewhat, but the volume could not be offset for such drops in Ford's truck and sports-utility vehicle (SUV) business.

That said, cost-cutting is helping narrow the loss that Ford is experiencing. The company reported that it cut over US$500 million in costs for the first quarter, bringing the total up to US$1.9 billion towards the goal of US$5.0 billion from the levels seen in 2005. A major part of that is a reduction in workforce, which Ford saw shrink by 18,000 in the quarter from white-collar and blue-collar buyouts and retirements.

Ford CEO Alan Mulally was candid about the company's situation, stating that there were a lot of uncertainties going forward, but that he was happy with the results as they are better than they had expected "across the board." These uncertainties however are especially concerning for Ford over other domestic automakers.

Ford struggled with its turnaround plans at first, and only recently has begun to find its path with the arrival of new CEO Mulally in the fourth quarter of 2006. His leadership is cited by many in the company as a motivating force in a difficult time. Ford is beginning to see some successes in its luxury and overseas operations, but the core business that comprises the vast majority of Ford's profits (domestic North American sales) continues to struggle with a slow pace of product rollout and too many retailers for its market share.

Ford needs to begin presenting a case for American consumers to revisit the brand, and that can only truly come through compelling product introduced in rapid fashion. Ford has shown some very compelling concepts, but thus far, has been quiet about publicly acknowledging much in the way of new product based on those concepts.