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Ford Unlikely To Accelerate To Profitability

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Automaker lowers earnings bar for 2009.

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Despite its graybeard status in the domestic auto industry, Ford (F) has been hurting for some time now. Stiff competition from overseas automakers and rising fuel prices are two of the primary reasons. The increasingly difficult lending environment and the prospect of higher interest rates also muddy the waters. The outlook has dimmed so much that on Thursday Ford was forced to lower the earnings bar for 2009. According to Bloomberg:

Ford Motor Company abandoned a target of returning to profit next year because of rising costs for steel and gasoline, a month after Chief Executive Officer Alan Mulally said the second-largest U.S. automaker expected to meet its goal.

The article goes on to say that:

Ford will pare [down]North American production 15 percent from a year earlier this quarter, from a previous 12 percent cut. It plans to reduce output in the region as much as 20 percent in the third quarter and up to 8 percent in the fourth quarter. The company also expects to write down the value of North American auto assets, according to a U.S. regulatory filing. Ford said it can't specify the amount yet.

It's important to note that analysts had forecasted a profit of 53 cents a share in 2009.

This is unnerving news for a couple of reasons. First and foremost, it was only a month or so ago that the company signaled it was on track to put some good ol' jingle in its jeans in 2009. Either management's crystal ball was fuzzy, or its internal outlook recently took a turn for the worse.

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But what's perhaps more interesting is what Mulally didn't say. He didn't come out and pound the table and say that 2010 would definitely be the company's year. Instead he punted, implying more would be known in July when Ford's expected to release its second quarter results. This is unlikely to sit well with the sell side, or the automaker's laundry list of institutional holders.

In fairness, it's not just Ford that's experiencing problems. In fact, its arch rival, General Motors (GM), has been taking it on the chin as well. The Detroit-based company recently made headlines when Lehman Brothers analyst Brian Johnson reportedly said it may have to raise approximately $9 billion to refinance debt over the next two years. Its hefty $3.3 billion first quarter loss also raised more than a few eyebrows.

The upshot? Per Yahoo Finance, over the trailing twelve months Ford actually had a higher gross margin than GM (12.07% versus 7.67%). This might give it something of an advantage. However, until Ford's second quarter earnings are out and management provides a little more detail, it's probably not wise for anybody to hang their hat on such a metric.

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No positions in stocks mentioned.

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