http://online.wsj.com/article/BT-CO-20090723-713287.html

 Quote:
DETROIT (Dow Jones)--Ford Motor Co. (F) returned to profitability in its second-quarter and slowed its cash burn amid speculation that it may issue more equity to reduce its debt.

The auto maker reported a net income of $2.3 billion or 69 cents a share, compared with a loss of $8.67 billion, or $3.89 a share for the same period a year earlier.

The company burned through about $1 billion in cash - down from $3.7 billion in the first quarter - during the quarter as it controlled incentive spending around the world while increasing output in its North American plants.

Chief Financial Officer Lewis Booth said all of the company's divisions are now focused on preserving cash, and new product introductions have allowed the auto maker to sell vehicles at higher pricing without resorting to incentives.

Ford's profit came largely from a $3.4 billion gain it received related to debt-restructuring actions in April. Excluding the one-time gains, the company would have narrowed its quarterly loss to $424 million compared with a loss of $1.03 billion a year earlier. It would have been the company's fifth consecutive quarterly loss.

The results split analysts' reaction. Bank Of America analyst John Murphy rated the stock as a "buy" and credited Chief Executive Alan Mulally with putting the company in a "strong position relative to its competition."

However, JP Morgan analyst Himanshu Patel said the results were not the massive "positive quarter" some had expected. He said the auto maker leaned on one-time items, such as Ford Motor Credit's profit, to produce the numbers.

Still, Ford shares rose as much as 9.4% or 60 cents to $6.98 in earlier trading Thursday before falling back to $6.85.

"With everything we see now, we believe the market will start coming back in the third quarter with more momentum in the fourth quarter, but it is still fragile," Mulally said Thursday without revising the goal of returning to profitability in 2011.

On a regional basis, Ford North America narrowed its pre-tax loss to $851 million from a loss of $1.3 billion a year earlier while Ford Europe - traditionally its strongest segment - saw its pre-tax profit shrink to $138 million from $582 million a year earlier. Last quarter, the North America unit reported an operating loss of $637 million while Europe had a $550 million loss.

Excluding some items, the company posted a loss of 21 cents which was narrower than the 50-cent average loss estimate of analysts surveyed by Thomson Financial. Revenue dropped to $27.2 billion, compared to $38.6 billion for the same time period a year earlier.

While the results show some improvement, Ford remains in a precarious spot as it continues losing billions of dollars as it waits for a rebound in the worldwide economy. The company refused U.S. federal aid and filing for bankruptcy, which may have created consumer goodwill but has allowed Chrysler Group LLC to merge with Fiat SpA (FIATY) and General Motors Co. to dump about $40 billion in debt.

Ford's debt was $26.1 billion as of June 30.

"We are aware of our debt but we are not going to speculate on what we will or won't do," Booth said. However, the company said in its press release that it will continue to pursue actions to improve the balance sheet.

There may also be a growing concern about supplier weakness. Booth said providing financial aid to more suppliers could hurt the auto maker's profits "a bit" during the last half of the year. He didn't provide details.

"We are watching closely because we think our supplier cash flow will be most under pressure in the end of the third quarter and toward the start of the fourth quarter," Booth said.

Ford is already providing debtor-in-possession financing to its former subsidiary, Visteon Corp. (VSTN), which filed for bankruptcy protection in May.



Buyouts, Credit And Market Share



During the second quarter, Ford reduced its U.S. hourly headcount by 1,000 workers through a buyout program.

"We are now comfortable with our work force level," Ford spokesman Mark Truby said.

Ford also reached a new deal with the United Auto Workers that will allow the company to pay off its retiree health care obligations by either cash or stock at the current market price.

Ford was originally locked into cashing in its stock at about $2 a share if it wanted to use shares to make one of its payments due in 2009, 2010 and 2011.

Ford Motor Credit, the company's lending arm, reported a pre-tax profit of $646 million, compared with a pre-tax loss of $294 million a year earlier. The improvement came from lower depreciation expenses for leased vehicles due to higher auction values.

However, Ford Motor Credit expects its second-half results to be lower than the first half. The lending unit doesn't expect the net gains from lease residual values in the second quarter to continue.

Ford now expects its full-year market share to improve in the U.S. and Europe in 2009 rather than remain flat. Ford's second quarter Europe market share was 9%, up from 8.5% for the same period a year earlier. It is now the highest second-quarter level in 10 years. Driving the increase was the introduction the Fiesta and Ka cars.

In the U.S., market share in the second quarter was 16.4%, up from 14.4% for the same time period a year earlier. The company attributed the gain in share to sales of the F-150 pickup and Fusion as well as controlled incentive spending.