Ford earned $2.1 billion in the first quarter and forecast a solidly profitable year as consumers spent more on big-ticket items like cars.
But investors weren't as confident, pushing down Ford shares after the automaker reported results on Tuesday. They worried that the company can't sustain its strong gains in the second half of the year as it could face higher commodity prices, rising interest rates and weaker European demand.
Gimme Credit analyst Shelly Lombard said Wall Street is worried that Ford relied heavily on profits from its finance division, which are expected to dip later this year, she said. Ford also saw huge U.S. market share gains in the first quarter that are unlikely to keep growing at such a pace. And Ford is expecting the cost of steel and other raw materials to rise as the economy improves, which will cut into profits.
"I wouldn't say it's a mirage. I think it's real. But the amount of progress they've made may not be sustainable," Lombard said.
Ford reported that net income per share was 50 cents for the quarter. That's an about-face from the same period last year when it lost $1.4 billion, or 60 cents per share, at the height of the recession. It was Ford's fourth straight positive quarter and its highest quarterly profit in six years.
Ford Chief Financial Officer Lewis Booth said the company's quarterly performance might not be duplicated later in the year. He said Ford's credit unit had a particularly strong performance, with a net profit of $528 million, and would likely see lower revenues later in the year. But he said Ford would be more profitable for the year than it was at the end of the first quarter. Ford Credit is expected to contribute $2 billion to the bottom line, up from a forecast of $1.5 billion in January.
Shares fell 70 cents, or nearly 5 percent, to $13.76 in afternoon trading.
Ford's first-quarter revenue rose 15 percent to $28.1 billion. Analysts polled by Thomson Reuters had expected $30.5 billion. Booth said revenues would have been higher but the company excluded $3.5 billion in income from Volvo, which it is selling to Chinese automaker Geely Holding Group at the end of March. That sale will officially close in the third quarter.
Ford saw $1 billion in gains from vehicle pricing, as sales of profitable vehicles like the F-150 pickup grew.
But Booth said Ford will be under pressure as commodity costs rise and the company spends more on upcoming product launches. Automakers are also competing to offer the best incentives. Incentive spending was flat for the quarter in the U.S. but rose in Europe, where Booth said some automakers were offering deals to make up for the end of scrappage programs.
Ford, the only Detroit-area automaker to shun government aid and stay out of bankruptcy protection last year, gained market share from crosstown rivals General Motors Co. and Chrysler Group LLC. It also benefited from Toyota Motor Corp.'s safety recalls of millions of vehicles. Ford was one of the top brands considered by Toyota owners who were shopping for a new car, Kelley Blue Book said.
In a sign of its confidence in the economic recovery, Ford said it's boosting North American production in the second quarter to 625,000 vehicles, a 9 percent increase over first-quarter levels. The increase could mean additional hiring by Ford, but Booth said Tuesday it's too early to say if the company will be adding workers. Ford cut 1,000 workers worldwide in the first quarter.
"We're not in a position to start hiring yet but we're pretty much stable," Booth said in a conference call with analysts and media.
The company was profitable in its key North American market, but it also made money in Asia, South America and Europe. In the U.S., it saw strong sales of the F-150 pickup and Ford Fusion sedan, while the new Fiesta small car sold well in Asia. It also is seeing brisk sales of the new Figo compact in India.
Booth said the company is seeing some economic recovery, especially in the U.S., but the recovery isn't exceeding Ford's earlier prediction of 11.5 million to 12.5 million in total U.S. sales for the year. That would be up from 10.4 million in 2009 but far below sales of more than 16 million five years ago.
"It's not running ahead of our expectations, but it is coming along roughly with our expectations," Booth said.
Ford reported a one-time gain of $188 million related to the Volvo sale. That was offset by a $63 million loss from personnel reductions and dealer payments. Ford said Volvo would have recorded a $49 million profit for the quarter.
Excluding those one-time items, Ford reported a pretax operating profit of 46 cents a share, beating expectations of 31 cents per share.
Ford's U.S. sales climbed 37 percent for the quarter and its market share rose nearly three percentage points. The company made $1.2 billion in North America, which had been draining cash in prior years. It also reported an 84 percent sales increase in China.
Ford has gradually cut costs and improved sales since the depths of the recession a year ago. Ford made $2.7 billion last year. But the company remains saddled with significant debt. Ford said its debt increased by $700 million to $34.3 billion in the quarter.
"While we are pleased with our results, we do not underestimate the challenges ahead," Ford President and CEO Alan Mulally said.
Ford paid off $3 billion in debt at the beginning of this month.
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