Ford Profitability Slides, Earns $2.4b Anyway

Ford’s Q2 results [ Presentation in PDF here] were mixed, as deliveries and revenue improved (7% and 13% respectively, compared to Q2 2010) but profitability slipped, but the automaker still ended the quarter with $2.4b in profit and $2.3b in operating cash flow. Debt was reduced by $2.6 from the first quarter of this year, and total Automotive debt landed at $14b, while gross Automotive cash landed at $22b. So, what happened to Ford’s operating profit margin?

Ford’s overall US market share was up considerably in the second quarter, but retail share saw a slower improvement to 14.3%, helping to explain some of the weaker profit.

Still, North American operations were up enough to overcome a weaker profit margin, and delivered a slight improvement in pre-tax results compared to Q2 2010.

And at the end of the day, North America is still Ford’s bread-and-butter, earning the lion’s share of pre-tax profits. South America saw pre-tax results drop by $18m, while Europe saw operating margins fall by more than 50%, en route to a weak $176m pre-tax profit. Meanwhile, huge costs and a weak market in Ford’s Asia-Pacific region saw pre-tax profits fall to just $1m, a huge decline from the $113m earned in Q2 2010.

On the financial services front, Ford’s profit also showed signs of slowing, as pre-tax profits fell by nearly $300m, to $604m. Volume was flat and margin was up by just $40m, leaving Ford Credit’s results vulnerable to credit losses of $130m and lease residual losses of $125m.

Going forward, Ford expects the global economy to continue to grow by around 3%, despite challenges in Europe, Japan and the US. For still assumes the US market will hit at least 13m units, an assumption that is just a little bit risky. Increased structural and commodity costs are expected to be $2b higher than previously estimated, but it estimates operating margins and cash flow to remain on track. Ford’s already increased prices twice this year to make up for increased commodity prices, which seem to be hitting the Blue Oval especially hard. How the firm plans to bring back profitability in the face of these rising costs isn’t entirely clear, but with volume up and pricing remaining strong across the industry, at least the timing is good. Besides, $2.4b in profit ain’t all that shabby itself.