Ford Posts $997 Million Profit - Its First Operating Profit Since Early 2008

Ford Motor Co. (F), the only major U.S. automaker to avoid bankruptcy in 2009, said yesterday (Monday) that an aggressive cost-cutting campaign, improved earnings at its financing arm and market-share gains in North America resulted in a $997 million third-quarter profit - its first operating profit since early 2008.

Ford has now been profitable for two consecutive quarters, a first for Chief Executive Officer Alan Mulally, who kept Ford out of bankruptcy as General Motors Co. and Chrysler Group LLC reorganized under Chapter 11 protection earlier this year.

Ford handily beat the 20 cents a share loss projected by 11 analysts surveyed by Bloomberg News,  reporting a quarterly pretax profit of $1.1 billion, or 26 cents a share on an adjusted basis, compared with a year-earlier loss of $3 billion, or $1.32 a share.

The back-to-back quarterly profit is the first real evidence that Ford may have completed a turnaround and will meet its goal of turning a full-year profit in 2011.

“Ford is a company that’s well into a turnaround,” Bernie McGinn, president of McGinn Investment management of Alexandria, Virginia, told Bloomberg. “They did it by themselves and didn’t take government money. That gives people a good gut feeling and they’re being rewarded for that.”

Ford lopped off $4.6 billion in costs in the first three quarters and expects to eliminate a total of $5 billion in costs this year.

The company also reported positive automotive cash flow of $1.3 billion after it burned through $1 billion in cash in the second quarter.  By comparison, Ford burned $7.7 billion in cash in last year’s third quarter.

Fitch Ratings raised its outlook on Ford and its finance arm to positive from stable, citing progress on its cost-cutting program, a reduction in output to match demand and a decrease in buyer incentives.

Ford’s share of its primary U.S. market increased to 15.8% for the first nine months, compared with 14.8% from a year earlier, according to Autodata Corp.

“We now expect to return to a strong profit in 2011 and positive cash flow,” Chief Financial Officer Lewis Booth told reporters. “There are still some headwinds, particularly economic headwinds. What happens in the balance of the year will be a good economic indicator.”

Those headwinds include $26.9 billion in debt. After another $7 billion to $8 billion is added by payments made to the United Auto Workers (UAW) retirement fund, Ford’s debt load will be larger than that of its restructured rivals.

Additionally, rank and file union members in the UAW formally rejected a contract with a host of cost-cutting concessions on Monday.  Meanwhile, the company remains in talks to sell its Volvo unit to China’s Geely Automobile Holdings Ltd.

Ford’s announcement amplified a report from the Institute of Supply Management (ISM) that a key index of U.S. manufacturing activity jumped in October, reaching its highest level since the spring of 2006.

“This is another clear sign the recession is over, and the recovery has begun,” Adam York, an economist at Wells Fargo & Co. (WFC) told CNNMoney.com.

Tempe, Ariz.-based ISM reported its national survey of purchasing managers in the manufacturing field increased to 55.7 in October, versus consensus estimates of 53 by analysts compiled by Briefing.com. It was the highest reading since April 2006 when the index registered 56.

Index readings above 50 signal growth while levels below 50 indicate contraction.

The index first went positive in August after 18 months of contraction. It has now has held above the 50 level for three months in a row.

“The jump in the index was driven by production and employment,” Norbert Ore, chair of the ISM’s manufacturing business survey committee told CNNMoney.com. “Overall, it appears that inventories are balanced and that manufacturing is in a sustainable recovery mode.”

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