Ford Gets S&P Upgrade

On July 27, 2009, credit agency Standard & Poor’s notified that it has revised its outlook on Ford Motor Co. (F) from “negative” to “developing,” and has affirmed the company’s credit ratings. The agency has affirmed its “CCC+” issuer credit ratings on Ford and Ford Motor Credit Co. LLC. It also affirmed “B-” ratings on Ford Credit’s European bank, FCE Bank Plc. Both ratings reflect non-investment grade, or “junk,” status.

The rating upgrade reflects Ford’s progress in reducing cash consumption in its automotive operations and stabilizing its U.S. market share. Ford used $1 billion in cash in the second quarter 2009, compared with $4 billion in the previous quarter and $7.4 billion in the fourth quarter of 2008. Operating cash outflow of $4.7 billion during the first half of the year was on track with Ford’s guidance. Ford did well to reduce its automotive debt obligations by $10.1 billion, which will save the company more than $500 million a year in interest expense.

Despite a loss of $303 million on sale of ACH plants in North America, Ford reported a second-quarter net profit of $2.3 billion, largely driven by debt reductions that lowered interest payments.

Ford targeted a reduction in automotive structural costs of $4 billion in 2009 as drafted in its business plan last year. Automotive structural cost reduced by $1.8 billion in the first quarter of 2009, including $1.2 billion in North America. Overall, Ford reduced automotive structural costs by $3.6 billion in the first half of the year.

Ford now looks forward to increase its market share in the U.S. and Europe for the full year 2009 due to strong reception for its new products. Consequently, the company anticipates third quarter 2009 production level to exceed second quarter 2009 production.

However, the company expects its credit arm’s results in the second half of 2009 to be lower than the first half of 2009. Ford still anticipates Automotive business pre-tax results to break even or be profitable in 2011, assuming U.S. industry sales of 10.5 -11 million units in 2009.

Then again, S&P may downgrade Ford in case it fails to conserve cash on the back of weak global auto sales. We rate the stock a Hold with a six-month target price of $6.50.

Subscribe by RSS Subscribe by Email