Ford on Monday reported a massive year-on-year increase in its third-quarter loss and said it would restate financial results from 2001 to the end of the second quarter of 2006 to correct the accounting for certain derivative transactions under Statement of Financial Accounting Standards (SFAS) 133, accounting for derivative instruments and hedging activities.
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Those corrections are not reflected in the preliminary results announced today that showed a net loss of $US5.8bn, or $3.08 per share. This compares with a net loss of $284m, or 15 cents per share, in the 2005 third quarter.
Excluding special items, the third quarter loss from continuing operations was $1.2bn, or 62 cents per share, compared with a loss of $191m, or 10 cents per share, a year earlier.
Ford blamed “operating challenges” in the company’s North America, Asia Pacific and Africa, and Premier Automotive Group operations but pointed to continued profitability in South America and at Ford Credit and noted that, though it lost money during the quarter, Ford Europe showed a year-over-year improvement in operating results and “remained poised to deliver full-year profitability”.
Special items included in the quarter’s net loss primarily reflected costs associated with restructuring efforts, primarily in North America, as well as the revaluation of long-lived assets related to automotive operations in North America and Jaguar/Land Rover.
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By GlobalDataOn an after-tax basis, special items reduced third-quarter earnings by $4.6bn or $2.46 per share. The pre-tax effect of these special items was $5.3bn.
In addition, effective this quarter, the company established a valuation allowance of $2.2bn against deferred tax assets primarily at its North America and Jaguar/Land Rover operations. The valuation allowance was established because of the cumulative losses the company has incurred and the financial outlook for these operations.
“These business results are clearly unacceptable,” new ex-Boeing CEO Alan Mulally said in his first results presentation statement since he joined Ford just before the end of the quarter.
“We are committed to dealing decisively with the fundamental business reality that customer demand is shifting to smaller, more efficient vehicles. Our focused priorities are to restructure aggressively to operate profitably at lower volumes, and to accelerate the development of new, more efficient vehicles that customers really want.
“We have great global assets and resources that we will leverage to significantly improve our product strategy, our production efficiency and quality. This will enable us to meet customer expectations for distinctive vehicles much more cost effectively. These actions will lead to profitable growth of our business over the long term.”
Pre-tax worldwide automotive sector losses in the third quarter were $1.8bn, compared with a pre-tax loss of $1.3bn a year ago.
Worldwide automotive sales declined to $32.6bn from $34.7bn while unit sales in the quarter were 1,511,000, down from 1,531,000 a year ago.
North America automotive operations reported a pre-tax loss of $2.0bn, compared with a pre-tax loss of $1.2bn, attributed largely to lower volumes and unfavourable mix, primarily associated with lower industry volume and lower market share, and higher incentives. Cost reductions were a partial offset. Sales were $15.4bn, down from $18.2bn.
South America automotive operations however imporoved pre-tax profit to $222m from $96m with higher volume and favourable pricing. Sales improved to $1.5bn from $1.2bn.
Ford Europe‘s third-quarter pre-tax loss was reduced to $13m from $55m due to higher vehicle sales, partially offset by higher pension-related costs, lower profits from operations in Turkey and negative net pricing. Sales were $7.3bn, compared with $6.4bn.
The loss at Premier Automotive Group (PAG) rose to $593m from $108m explained by adverse cost performance, primarily reflecting adjustments to Jaguar and Land Rover warranty accruals and lower volume at all operations, excluding Aston Martin. Improvements in overhead costs were offset by increases in advertising. Third-quarter sales for PAG were $6.5bn, compared with $6.8bn.
Asia Pacific and Africa reported a pre-tax loss of $56m, compared with a $21m profit a year ago. The decline primarily reflected lower production and dealer inventories, adverse mix, and higher incentives, partially offset by cost reductions. Sales were $1.6bn, compared with $1.9bn.
Ford’s share of Mazda pre-tax Q3 profits and associated operations was $40m, down from $112m. The decline primarily reflected the non- recurrence of mark-to-market gains on Mazda convertible bonds during 2005, which have now been entirely converted to equity.
Third-quarter results included a pre-tax profit of $553m in other automotive, compared with a loss of $241m a year ago. The year-over-year improvement relates to tax-related interest and higher portfolio returns.
For the third quarter, the financial services sector earned a pre-tax profit of $448m, compared with $1.1bn a year ago.
Ford Motor Credit Company reported net income of $262m in the third quarter of 2006, down $315m from net income of $577m a year earlier. On a pre-tax basis from continuing operations, FMC earned $428m in the third quarter, compared with $901m in the previous year. The decrease in earnings was attributed to lower financing margins, higher depreciation expense and the impact of lower average receivable levels.
