* Q3 operating EPS 48 cents vs Street view 38 cents
* Cuts debt by $2 bln in Q3, plans further cuts in Q4
* Debt reductions cut annual interest by nearly $800 mln
* Sees automotive profits in all regions in Q4 and 2011
* Shares up 1.8 pct (Adds CEO remarks, link to Reuters Breakingviews; updates shares; mentions pickup truck sales)
By Bernie Woodall and David Bailey
DETROIT, Oct 26 (Reuters) - Ford Motor Co (F.N) posted a higher-than-expected quarterly profit on Tuesday and accelerated plans to cut debt and borrowing costs to bring the automaker closer to an investment-grade credit rating.
Ford, which expects to be solidly profitable this year, said it repaid $2 billion of debt in the third quarter, expects to pay off a debt to a union retiree healthcare trust fund on Friday and has launched an offer to encourage holders of two issues of its convertible notes to exchange them for shares, in an effort to further reduce its debt.
Ford shares, which touched a six-month high on Monday, were up 1.8 percent in afternoon trading trading after the release of the earnings results and debt-reduction plans, as the Dow Jones Industrial Average was essentially flat.
The automaker said it now expects cash on hand in its automotive business to at least match its debt by the end of 2010 — a year ahead of a forecast it gave in July. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Reuters Breakingviews [ID:nN26126582]
Graphic on Ford earnings r.reuters.com/byn32q
Reuters Insider show on ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
“Overall, we are moving from fixing the fundamentals of our business and weathering the downturn to growing the business profitably around the world,” said Alan Mulally, who became Ford chief executive officer four years ago.
Ford, which posted losses totaling $30 billion from 2006 through 2008, borrowed $23.5 billion in late 2006 to support its turnaround, leaving it with much heavier debt loads than rivals General Motors Co [GM.UL] and Chrysler Group LLC.
Dearborn, Michigan-based Ford last had an investment-grade credit rating in May 2005. Ratings agencies have raised Ford in recent months with its reporting of continued profits, and now have it overall two notches below investment grade.
Morningstar analyst David Whiston said Ford’s debt reduction, elimination of non-profitable brands such as Volvo and Jaguar to concentrate on its mass-market Ford brand, and higher-quality vehicles have made a difference in results.
“They are making better vehicles that people want to pay up for, even in the small-car segment,” Whiston said.
Ford introduced a Fiesta subcompact to the U.S. market earlier this year and plans to begin broad sales of a redesigned Focus compact car in early 2011 in a major upgrade of its lineup with smaller, better-equipped cars than in the past.
Mulally said this change toward more profitable sales at Ford is a key move in the past few years.
“Not too long ago, we were a discounted brand in the smaller- and medium-sized vehicles,” said Mulally in a conference call with analysts.
Ford Chief Financial Officer Lewis Booth said sales remain strong and profit margins high for F-series pickup trucks, led by the F-150, which remains the best-selling vehicle in the United States.
Ford completed the sale of Volvo to China’s Geely Automobile Holdings Ltd (0175.HK) in August and has announced plans to phase out the Mercury brand, leaving it with additional resources to focus on the restoration of its Lincoln luxury brand.
The introduction of vehicles such as the redesigned Taurus and the Fiesta have allowed Ford to increase its average sale price significantly, contributing to profits and helping it increase its U.S. market share.
Ford’s profits will continue to rise as long as it “continues to have the right products,” said Van Conway, an automotive analyst at Conway MacKenzie.
Third-quarter net profit rose to $1.7 billion, or 43 cents per share, from $997 million, or 29 cents per share, a year earlier. Excluding the Volvo unit, revenue rose $1.7 billion to $29 billion.
Ford reported earnings of 48 cents per share excluding one-time items. On that basis, analysts on average had expected 38 cents, according to Thomson Reuters I/B/E/S.
Ford has posted net profits for six consecutive quarters. The $1.7 billion net profit was its strongest result for a third quarter since at least the 1980s, the automaker said.
Ford’s automotive business reported a $1.3 billion operating profit for the quarter. All regions except Europe reported operating profits. Ford’s captive finance arm reported a $766 million pretax profit.
The automaker has been reducing its high debt levels over the last several quarters as the business continues to generate positive cash flow.
Ford plans to repay the remaining $3.6 billion of debt owed to a retiree healthcare trust for the United Auto Workers union on Friday. On Tuesday, Ford launched offers in which holders of its convertible 4.25 percent notes due in 2016 and 2036 would receive cash premiums to convert the notes to Ford common stock. The offerings will not change the share count used to calculate diluted earnings per share.
Excluding the offers for the convertible notes, the automaker’s debt reductions will total $10.8 billion in 2010, cutting its annual interest expense by nearly $800 million.
Ford ended the third quarter with automotive debt of $26.4 billion and automotive cash of $23.8 billion. Auto debt will drop to $22.8 billion, and cash to 20.3 billion, after the union healthcare trust debt payment, Ford said.
The automaker said it expects all automotive regions to report profits for the fourth quarter and for 2011. Ford expects total profit and automotive operating cash flow in 2011 to build on the gains from 2010.
Ford Credit is expected to be profitable in 2011, but at a lower level than in 2010, Ford said.
Ford shares on the New York Stock Exchange were trading up 26 cents to $14.41, nearly double year-ago values of about $7.50 per share. (Reporting by Bernie Woodall and David Bailey; Editing by Gerald E. McCormick and John Wallace)