Ford on Tuesday reported second quarter net income of $2.4bn, or 59 cents per share, down $201m year on year. Pre-tax operating profit slipped $64m to $2.9bn or 65 cents per share.
Automotive pre-tax operating profit rose $209m to $2.3bn. Ford Credit reported pre-tax operating profit of $604m, down $284m.
Company revenue rose $4.2bn to $35.5bn. Automotive operating related cash flow was $2.3bn in the second quarter and the automaker made an additional $2.6bn of debt repayments, making payments on term loans and full repayment of the outstanding balance on its revolving credit line.
For the full year, the automaker said it “plans to deliver continued improvement in pre-tax operating profit and automotive operating-related cash flow compared to 2010”.
Total vehicle wholesales in the second quarter were 1.5m units, up 101,000 units.
By region, North America booked pre-tax operating profit of $1.9bn, an increase of $10m. Wholesales were 736,000 units, up 77,000 units from a year ago. Revenue was $19.5bn, up $2.6bn.
South America reported pre-tax operating profit of $267m, a decrease of $18m. Wholesales in the second quarter were 135,000 units and revenue rose $300m to $2.9bn.
Europe pre-tax operating profit fell $146m to $176m due to higher commodities and structural costs and an “adverse change in dealer stocks” – reflecting moves to replenish dealer stocks in second quarter 2010 following the end of scrappage programmes compared to dealer stock declines in second quarter 2011. Wholesales in the second quarter were 422,000 units, about the same as a year ago. Revenue was $9bn, up $1.5bn.
Asia Pacific Africa reported pre-tax operating profit of $1m, a decrease of $112m. Wholesales were 226,000 units, up 17,000 units. Revenue was $2.1bn, up $300m.
Other Automotive lost $76m, an improvement of $475m from a year ago.
In the first half of 2011, the seasonally adjusted annual rate of sales was 12.8m in the US and 15.4m units for the 19 markets Ford tracks in Europe.
The automaker said it is maintaining its US full year industry volume outlook in the range of 13m to 13.5m units. In Europe, after a strong first half, it foresees some sign of weakness related to the debt crisis and fiscal austerity programmes and now forecasts the industry in Europe to be in a range of 14.8m to 15.3m units compared with 14.5m to 15.5m units previously.
Ford said that, as reported with first quarter results, quality remains mixed due to some near-term issues in North America, which it “is addressing” but is pleased with progress made to date. The company also said it is on track to achieve quality improvements in international operations.
The company expects full year US total market share, its US retail share and European market share to be equal to or improved from 2010. In the first half, Ford’s US total market share was 16.7%, its US retail share was 13.9% and European market share 8.4%.
The automaker said it remains on track to deliver continued improvement for full year pre-tax operating profit and automotive operating-related cash flow compared with 2010. In 2010, the company reported a full-year pre-tax operating profit of $8.3bn and automotive operating-related cash flow of $4.4bn.
Ford said it continues to expect second half results will be lower than first half due to increasing commodities and structural costs, as well as seasonal factors that tend to favour the first half. At Ford Credit, lower profit in the second half is expected.
Ford continues to expect commodities and structural costs to each increase by about $2bn compared with 2010 but expects structural costs as a percent of net revenue to improve compared with 2010.
Based on first half performance and expectations for the full year, Ford expects automotive operating margin to be equal to or improved compared with 6.1% in 2010, despite higher commodities costs. In the first half, automotive operating margin, at 7.3 percent, was down half a point year on year.
Third quarter production is forecast at about 1.4m units, up 92,000 units.
“We are making consistent progress on our commitment to deliver profitable growth for all,” said CEO Allan Mulally.
According to Edmunds.com, Ford’s sales were up 9.1% in the first half. Its average incentive spending was down 15.5% while its average transaction price (excluding incentives) was up 2.6%. Despite this growth, its US market share was down 0.6 percentage points to 16.9% in the first half of 2011.
“For weeks, Ford has been signaling that they expect weaker earnings in the second quarter due to higher costs for product development and commodities, which indeed have been on a steady climb,” said Edmunds senior analyst Michelle Krebs.
“But Ford also has to maintain an air of modesty with UAW contract talks kicking off this week. The company certainly doesn’t want to show that it’s flush when the union wants a bigger piece of the profits.”