Ford shares drop after earnings warning

DETROIT - Shares of Ford Motor Co. fell on Monday to their lowest level in nearly two years after the automaker cut its 2005 earnings forecast and abandoned a key 2006 profit goal.

Shares of the second-largest US automaker fell as much as 8 per cent while the spread or extra yield on bonds with a 7.45 per cent coupon due 2031 widened 0.35 percentage point to 4.65 per cent.

The warning also dragged down shares of major auto parts suppliers like Visteon Corp. and rival carmaker, General Motors Corp. , which warned last month that it will post its biggest quarterly loss since 1992.

"We no longer suggest investors add or establish positions in Ford as the company's outlook seems much less sanguine than we previously believed," Calyon Securities said in a research note to clients.

Ford said late on Friday that it expects its 2005 profit to be at least 14 per cent lower than anticipated, due in part to higher steel prices, rising US petrol prices and health care costs.

The automaker also said it does not expect to hit its 2006 profit goal of US$7 billion before taxes. The goal was viewed as a crucial milestone in the five-year turnaround plan Ford launched in January 2002, when the industrial icon was teetering on the brink of collapse.

The revision caused Standard & Poor's on Friday to cut its debt rating outlook on Ford and its finance arm to "negative," bringing the automaker a step closer to junk status. A downgrade to junk could raise borrowing costs significantly.

Fitch Ratings on Monday also revised its debt rating outlook on Ford to negative but still has the company at "BBB-plus," which is three steps above junk.

Ford, including its subsidiaries, had about US$175 billion of debt outstanding as of Dec. 31, making it the second biggest issuer in the investment-grade corporate bond market.

Shares of Ford were down 5.4 per cent, or 60 cents, at US$10.43 on the New York Stock Exchange after falling as low as US$10.15 earlier. GM shares were down 2.2 per cent, or 66 cents, at US$28.84, while Visteon shares were down 4.7 per cent, or 26 cents, at US$5.24 on the NYSE.

Ford's 2005 revised outlook comes as it continues to lose market share to domestic and Asian rivals. The company's US sales have declined 5.2 per cent so far this year.

Ford also said on Friday it expects automotive profits before taxes to be break-even at best this year, revising earlier estimates of between US$1.5 billion and US$2 billion in pretax profit.

Rising US petrol prices, which are hurting sales of high-margin sport utility vehicles, are now starting to hurt earnings as they have hit Ford's mix of vehicles in the market, according to analysts.

- REUTERS