Restructuring charges cost Ford

Ford Motor Co. on Friday reported its biggest quarterly loss in over four years as it took $2.5 billion in charges for job cuts and plant closings at the start of a massive restructuring effort.

Excluding the anticipated charges, Ford's results fell short of Wall Street expectations, underscoring concerns about the weakness of its auto operations and sending its shares down as much as 6 percent.

Vehicle sales dropped by 6 percent, reflecting steeper incentive spending, fewer sales of profitable sport utility vehicles and a greater reliance on low-margin sales to commercial fleets and car rental companies.Ford, which is closing 14 plants and cutting up to 30,000 factory jobs in North America, posted a first-quarter net loss of $1.19 billion, or 64 cents per share, compared with a profit of $1.21 billion, or 60 cents per share, a year ago.

The loss was Ford's largest since a $5 billion loss in the fourth quarter of 2001, reflecting charges for an earlier restructuring that coincided with the start of CEO Bill Ford Jr.'s tenure at the helm of the company his great grandfather founded. Analysts said the results spotlighted intensifying pressure on Ford.

“They continue to lose market share,” said Tim Ghriskey, chief investment officer, Solaris Asset Management. “Incentives didn't seem to really help the situation here. You have to wonder if the incentives are really the right way to go.”

Bear Stearns analyst Peter Nesvold said Ford's sales appeared weaker even than crosstown rival General Motors, which is undertaking its own sweeping restructuring.

Unlike GM, which has introduced a new line of full-size SUVs, Ford has come to rely more heavily on less-profitable passenger cars and crossover utility vehicles, he said. Unlike traditional truck-based SUVs, crossovers are built off car platforms and tend to be more fuel efficient.Ford also expects to cut second-quarter vehicle production in North America 1.7 percent from a year earlier, to 890,000 cars and trucks.

“Our thesis since last October has been that GM's mix would improve in 2006 as the year progressed and that Ford's would deteriorate,” Nesvold wrote in a note. “Our sense is that our thesis is starting to play out.”

Short of expectations

Ford's earnings from continuing operations were 24 cents per share, short of Wall Street's view of 26 cents a share as tracked by Reuters Estimates. Revenue fell 9 percent to $41.1 billion from $45.1 billion a year earlier.

One-time charges reduced earnings by 88 cents per share in the first quarter, or $1.65 billion on an after-tax basis.

“We think first quarter results also begin to lower investor expectations about Ford's earnings power for the year,” Goldman Sachs analyst Robert Barry said.

The results were Ford's first since the automaker announced its restructuring plan, dubbed the “Way Forward.” The plan is designed to restore profitability in core North American automotive operations by 2008.

On a conference call with analysts, Ford executives declined to say when the plan would start to show results in operating income. The company no longer provides financial guidance.

“Our path is not going to linear and smooth,” said Mark Fields, Ford's president for the Americas.

Ford, which expects to take a total of $3.4 billion in restructuring charges this year, posted first-quarter profits in all of its regions outside the U.S. market.

Ford's U.S. vehicle sales fell almost 3 percent in the first quarter. Global sales rose slightly to 1.72 million vehicles, but revenue fell almost 6 percent to $37 billion.

The balance sheet reflected the strain of the U.S. restructuring, with cash and equivalents dropping to $21.2 billion on a consolidated basis from $28.4 billion a quarter earlier. Ford and GM, which reported a $323 million quarterly loss on Thursday, have both seen margins squeezed by competition from Asian rivals and shifting consumer tastes away from SUVs in the face of rising gas prices.

Both companies are also struggling with high fixed costs for wages and benefits and higher funding costs after a cut in their credit ratings to "junk" status. GM's narrower-than-expected loss this week prompted a relief rally, but Argus Research analyst Kevin Tynan said Ford's results are a better snapshot of the ailing U.S. auto industry.

“GM had a lot of inventory build, a big spike in first- quarter production, and it affected their top-line,” he said. “Ford did not have that, so its loss in North America is more indicative of where the companies are right now.”

Ford's deepening troubles have sent its shares down about 15 percent over the last 12 months. The company now has a $14.2 billion market value, less than a tenth of the capitalization of Japanese rival Toyota Motor Corp. Ltd.

Ford shares dropped 6.16 percent, or 49 cents, to $7.46 in noon trading on Friday. Ford's 7.45 percent coupon bonds due in 2031 rose to 73.75, up from 73.25 on Thursday for a yield of 10.4 percent, according to MarketAxess.