Las Vegas Sun

March 18, 2024

Ford cuts forecast; ratings may be cut

Ford Motor Co.'s credit ratings may be lowered after the automaker cut its 2005 earnings forecast for the second time this year, Standard & Poor's said.

S&P said today there is "an increased likelihood" that Ford's ratings "will ultimately be downgraded" after Ford Tuesday lowered its forecast to $1 to $1.25 a share, compared with a previous forecast of $1.25 to $1.50. Ford's reduced forecast wouldn't immediately affect the automaker's BB+ rating, which is the highest noninvestment grade, S&P said.

The automaker's U.S. sales slid 5.7 percent in the five months through May, as demand for its F-Series pickup trucks and sport-utility vehicles slowed and Toyota Motor Corp. gained market share. Dearborn, Mich.-based Ford, which released the forecast after U.S. markets closed yesterday, also said it would eliminate about 1,700 more jobs to reduce expenses.

"They really can't stand the competition from Japanese cars," said Michael Rachor, a Munich-based fund manager with Activest Investment, which oversees $69 billion in assets. "If they won't get it right on the passenger car front, they won't succeed in the long term."

Ford shares slipped 30 cents, or 2.7 percent, to $10.87 at 9:31 a.m. in New York Stock Exchange composite trading. Ford's $3 billion of 7 percent bonds repayable in 2013 dropped to 96 cents in London from 97.75 cents yesterday. They yield about 369 basis points more than U.S. government debt of similar maturity, up from 333 basis points.

S&P said Ford may need to cut jobs further and make other changes to stop the decline in profits, which follow three years of increases since Chief Executive William Clay Ford Jr. took over in 2001.

"Ford's disappointing financial performance raises the possibility that sweeping and costly additional restructuring actions will be necessary," S&P said in today's statement. Such cuts would go "far beyond the incremental salaried employee-reduction measures that Ford has just initiated."

Ford, since 2002 has closed assembly plants in New Jersey and Canada and will shutter a factory in Ohio this year. Chief Financial Officer Don Leclair told reporters on April 20 that the company still has more capacity than it needs. Leclair declined to comment further about factories.

Ford's North American plants ran at 86 percent of capacity last year, according to an annual report by Harbour Consulting of Troy, Mich. Plants ran from a low of 37 percent of capacity to 120 percent, according to the report. Harbour assumes 100 percent capacity as a plant running two shifts without overtime.

A plant in St. Louis that produces the Explorer sport- utility vehicle was cut early this year to one shift from two, according to Ford production reports. The plants closed in New Jersey and Canada were also operating at only one shift before they were shut down.

Other plants that are running at low capacity include a St. Paul, Minn., factory that makes Ranger small pickup trucks and a Wixom, Mich., plant that produces the Lincoln LS, Town Car and Thunderbird, a car Ford is discontinuing. The Wixom plant had temporary shutdowns in April and May.

Ford can't close any additional plants under terms of a contract with the United Auto Workers union that expires in September 2007.

The automaker on April 8 lowered its outlook from a range of $1.75 to $1.95. Ford's forecasts exclude some gains and costs.

First-quarter net income slid 38 percent and S&P in May lowered its rating on the company's debt to junk status. S&P also slashed rival General Motors Corp.'s rating to below investment grade. Both automakers have lost market share to Toyota and Honda Motor Co. Rising costs for health care and raw materials and slowing demand for trucks, their most profitable products, have also damped profit.

Ford said it will trim 5 percent of salaried jobs in North America in addition to a reduction of 1,000 such positions in the U.S. announced in April. Leclair said in an interview that the latest reduction applies to about 35,000 employees at the Ford, Lincoln and Mercury brands.

Ford also said it's also eliminating 2005 bonuses for managers worldwide and is suspending matching grants for salaried-worker 401(k) retirement plans effective July 1. North American use of agency and purchased services will be cut 10 percent.

The automaker said "continued supplier-related challenges" contributed to the lower profit forecast, without giving details. Ford is taking over 24 plants of its former parts unit, Visteon Corp., to help the supplier cut costs.

"Ford's cost base makes it less favorably positioned than its peers in the event of a worsening pricing environment," said Himanshu Patel, an analyst at J.P. Morgan, in a note to investors today. "Ford's North American volumes have been lackluster of late."

Oscar Suris, a Ford spokesman, said he couldn't estimate how much the company will save from the moves announced yesterday. Ford matches 60 cents for every $1 employees contribute to 401(k) plans, up to 5 percent of their annual salary, he said.

Ford raised its second-quarter profit forecast to 30 cents to 35 cents a share, excluding some costs, because of a reduced tax rate and better-than-expected results at Ford Motor Credit Co., which makes loans to buyers of Ford-produced cars and trucks. The previous second-quarter forecast was breakeven to 15 cents a share, excluding some costs.

The automaker doesn't make forecasts on a net-income basis. The company estimated that special items would increase the second-quarter earnings by 2 cents a share and reduce full-year profit by at least 8 cents a share.

The company was expected to earn $1.16 a share in 2005, according to the average estimate of 16 analysts surveyed by Thomson Financial. The analysts' second-quarter average estimate was 13 cents.

Net income for all of 2004 was $3.49 billion, or $1.73 a share. Net income in last year's second quarter was $1.17 billion, or 57 cents.

Ford's U.S. sales have fallen this year amid mixed results for new models that Bill Ford, 48, was counting on to boost market share.

The automaker will probably post a loss of 28 cents a share in the third quarter based on yesterday's announcement, Chris Ceraso, an analyst with Credit Suisse First Boston, said in a research note today.

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