Ford profit down; lackluster outlook disappoints (Reuters)

DETROIT (Reuters) – Ford Motor Co posted a lower third-quarter profit after taking a hit from plunging metals prices and sustaining losses in its European and Asian operations.

The No. 2 U.S. automaker also cut its 2011 profit margin forecast, suggesting a weaker-than-expected fourth quarter. It cited slowing growth in China, pricing pressure in Europe and provided no timetable for when it might resume paying a long-anticipated dividend.

Ford shares fell as much as 7.2 percent on Wednesday before paring losses somewhat. (For a graphic of Ford's earnings, see: http://link.reuters.com/sut64s )

Investors and analysts had been looking to the earnings report as a turning point where the automaker could detail plans to pay its first dividend since it slid into crisis in 2006. Ford has posted profits for 10 straight quarters.

But Chief Financial Officer Lewis Booth said Ford would not address the timing of a dividend before seeing more improvement in its core business. He said growth in North America remained on a slow upward trend, but acknowledged demand in China had slowed.

Ford in 2011 has not maintained gains made last year in U.S. market share and quality ratings.

Its U.S. market share has remained flat this year after showing a rise in 2010 to 17 percent from 15 percent the previous year. On Tuesday, influential watchdog Consumer Reports said Ford fell to 20th place from 10th place in its vehicle reliability study.

"With general economic concerns, the quality issues Ford has had and Japanese competitors ramping up production, the company has its work cut out for it heading into 2012," Edward Jones analyst Matt Collins said.

Analysts gave Ford's third quarter lukewarm reviews, with J.P. Morgan calling it "so-so" and Citi describing the results as "a bit messier than expected."

Revenue rose 14 percent to $33.1 billion. But net income slipped to $1.65 billion, or 41 cents per share, down from $1.69 billion or 43 cents per share a year earlier.

Excluding one-time items, Ford earned 46 cents per share, 2 cents higher than what analysts polled by Thomson Reuters I/B/E/S had forecast.

The company also cut its 2011 outlook for its automotive profit margin, saying it now expects 5.7 percent, down from 6.5 percent through the first three quarters. Last year, Ford's margin was 6.1 percent and it had previously forecast it would match or beat that level.

J.P. Morgan analyst Himanshu Patel said Ford's margin outlook implied a fourth-quarter profit of 23 cents a share. Analysts were expecting 32 cents.

Another disappointment for investors was the lack of news about a dividend, Jefferies analyst Peter Nesvold said. Ford last paid a dividend in September 2006.

Booth refused to be drawn into specifics on a payout. "We're on record as saying we'd like to pay a dividend sooner rather than later."

LOSSES IN EUROPE, ASIA

While Ford posted a pretax profit of $1.55 billion in North America as U.S. auto sales steadied over the summer and avoided the renewed slump some analysts had feared, losses were reported for Asia and Europe.

In Asia and Africa, the pretax operating loss was $43 million, compared with a $30 million profit last year. Ford said slowing growth in China contributed to the shortfall.

In Europe, Ford saw its loss widen to $306 million from $196 million a year ago. Booth said the caution for Ford's outlook partly reflected the risk of a competitive crunch in a region where automakers sacrifice margin by offering deeper discounts and by turning to lower-margin sales to fleet operators like rental agencies.

"The pressure is really on margins in Europe," he said of the auto industry. "We could be in a period of very slow growth as the sovereign debt crisis gets resolved and we see the fiscal austerity programs working their way through the economies."

The tough environment in Europe was reflected by the profit warning and job cuts on Wednesday by French automaker PSA Peugeot Citroen.

Ford's third quarter included a noncash charge of about $350 million to write down the value of hedges the company had taken out to offset the risk of rising raw material costs, including aluminum, copper and precious metals. However, those costs fell sharply in late September as concerns about weaker global growth mounted.

The company said the charge will either reverse if commodity prices rise or be offset by lower parts costs over the next 18 months.

Booth reiterated Ford could restart a dividend before it regains an investment-grade credit rating.

After last week's agreement between Ford and the United Auto Workers union on a new four-year labor contract, Fitch Ratings and Standard and Poor's both raised the company's credit rating to within one notch of investment grade. Ford was last at investment grade in 2005.

Ford said recent floods in Thailand have cut fourth-quarter production so far by 17,000 vehicles due to supplier problems, but the company's plant was unaffected.

The company forecast its fourth-quarter global production at 1.37 million vehicles, up 22,000 from a year ago.

In North America, fourth-quarter production will be 660,000 vehicles, up 15,000 from its previous forecast. Of this total, about two-thirds will be trucks and sport-utility vehicles and a third will be passenger cars, Booth said.

Costs related to the contract ratification by Ford's 41,000 unionized U.S. factory workers were not reflected in the third-quarter results. Those costs will be reflected in fourth-quarter results, Booth said.

Ford lowered its automotive debt by $1.3 billion in the quarter, to $12.7 billion. Ford's debt-reduction efforts will save about $1 billion in interest payments in 2011 compared with 2010.

Ford shares were down 6.2 percent at $11.66 on Wednesday afternoon, off an earlier low at $11.54.

(Reporting by Bernie Woodall and Ben Klayman, writing by Kevin Krolicki; editing by John Wallace and Matthew Lewis)

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Consumer mood up but future outlook at 31-year low (Reuters)

NEW YORK (Reuters) – Consumer sentiment inched up in early September but Americans remained gloomy about the future with their expectations falling to the lowest level since 1980, a survey released on Friday showed.

The Thomson Reuters/University of Michigan's preliminary reading on the overall index on consumer sentiment edged up to 57.8 from 55.7 the month before, which had been the lowest level since November 2008. It topped the median forecast of 56.5 among economists polled by Reuters.

Consumer spending is a linchpin of the U.S. economy but confidence has been badly hit as unemployment remains high and wages stagnate. Acrimonious political debate over the United States' debt ceiling dampened sentiment over the summer. So did worries the U.S. economy could fall back into recession.

"The consumer is still very frustrated with virtually everything -- 9 percent unemployment, still very tepid jobs creation and heightened job destruction," said Lindsey Piegza, economist at FTN Financial in New York.

Investors are now turning their attention to next week's Federal Reserve meeting. The central bank is expected to unveil new measures to bolster growth, though analysts expect the Fed will only be able to take modest steps.

A new jobs-creation package from President Barack Obama is also facing opposition, suggesting it is unlikely to emerge from Congress in its current form. For details, see

"It is basically an impasse in Washington as the President came out and talked about a jobs program, but it seems like more Americans are skeptical about the program than they are optimistic," said Piegza.

The economy is struggling to regain momentum after barely growing in the first half of the year. Consumer spending drives about two-thirds of activity.

The University of Michigan's gauge of consumer expectations dipped to 47.0 from 47.4. It was the lowest level since May 1980. The economic outlook for the next 12 months fell to 38 from 40, the lowest since February 2009 when the world economy was gripped by the credit crisis.

Still, the survey's barometer of current economic conditions gained to 74.5 from 68.7, and better than a forecast of 68.0.

"It was certainly nice to see the current conditions index rise again, but all we did was retake some ground to where we were in July," said Tom Porcelli, senior U.S. economist at RBC Capital Markets in New York.

"I don't think this report is important for the Fed meeting next week but I do think the overall lack of consumer confidence will be very important."

There was muted reaction in financial markets immediately following the data with U.S. stocks little changed in a choppy session.

Two bellwether U.S. companies expressed confidence in the economy on Thursday.

United Parcel Service Inc said the company was on track for record results this year despite the economy's "bumpy ride". General Electric's chief executive said he sees "good, decent economic growth everywhere."

Friday's data showed consumer confidence in economic policies near historic lows. Three out of four consumers expected bad times for the economy in the year ahead. Only half of respondents said the same at the beginning of the year.

The survey's one-year inflation expectation rose to 3.7 percent from 3.5 percent, while the survey's five-to-10-year inflation outlook was at 3.0 percent from 2.9 percent.

Separate data showed a measure of future U.S. economic growth was little changed in the latest week, while the annualized growth rate fell to its lowest level in a year.

The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index dipped a hair to 122.4 in the week ended September 9 from 122.5 the week before. That was originally reported as 123.0.

The index's annualized growth rate slumped to minus 7.1 percent from minus 6.6 percent to fall to its lowest level since mid-September 2010.

(Additional reporting by Emily Flitter in New York and Jason Lange in Washington; Editing by Andrew Hay)

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Moody's expects to affirm U.S. rating, negative outlook (Reuters)

NEW YORK (Reuters) – The United States will likely keep its top-notch credit rating from Moody's for now, despite the "limited magnitude" of the deficit reduction plans being discussed in Washington, the ratings agency said on Friday.

But Moody's warned in a report that the confirmation of the Aaa credit will likely come with a negative outlook, meaning there is a risk of a downgrade in the medium term.

That decision will depend on the U.S. economic performance in 2012 and prospects for future deficit-reduction measures, Moody's analyst Steven Hess said.

"If we're convinced that the economy takes off in 2012 and shows very strong growth, that makes the whole process of fiscal consolidation somewhat easier," Hess told Reuters in an interview.

The report from Moody's came four days before the United States says it will run out of cash to pay all of its bills.

In Washington, the House passed a deficit plan that likely will die in the Senate, and President Barack Obama told lawmakers before the vote to stop wasting time and find a way "out of this mess."

Moody's issued the report to clarify its position on the U.S. debt situation, its Chief Risk Officer Richard Cantor said in the same interview.

"Sometimes there is confusion and all the ratings agencies are grouped together," he said.

Standard & Poor's has threatened to cut U.S. ratings in the next few months if the lawmakers fail to come up with a meaningful plan to cut the nation's deficit.

Both agencies seem to agree that deficit-reduction measures of around $4 trillion would be enough for the United States to avoid a rating downgrade.

The difference is that, while S&P has indicated it may downgrade the United States by mid-October if it doesn't see a meaningful deficit-reduction plan in place now, Moody's is willing to give the government more time before making that decision.

PRIORITIZING DEBT PAYMENTS

Moody's expects the government will continue to honor bond payments even if lawmakers fail to raise the debt ceiling before August 2.

"If the debt limit is not raised before August 2, we believe that the Treasury would give priority to debt service payments and could thus postpone a potential debt default for a number of days," Moody's said in its report.

"Revenues would be more than adequate for some period of time to meet those payments, although other outlays would be severely reduced as a result."

The ratings agency warned, however, that a debt default would likely lead to a rating downgrade even if it was "swiftly cured and investors suffered no permanent losses."

Lawmakers in Washington were set to work through the weekend, with a recently-passed plan by Republican House of Representatives Speaker John Boehner expected to die in the Democratic-controlled Senate on Friday night.

Wall Street on Friday ended its worst week in a year, and one equity strategist said the stock market's direction on Monday will rely on the weekend's outcome.

"It exclusively is a function of what does Congress do over the next 48 hours," said Phil Orlando, chief equity market strategist at Federated Investors. "If Speaker Boehner is able to get a deal through over the next two days, we trade higher. If we get nothing constructive and a series of more dueling press conferences we probably open lower."

Moody's noted that the first interest payment of $31 billion on U.S. Treasury debt is not due until August 15.

"This is the first date that a default on bonds could occur," the report said, highlighting that, this year, August is the month when the ratio of interest payments to incoming revenues is the highest.

The agency sees less chance of a default on August 4, when T-bills worth $59 billion mature because it is unlikely that the Treasury would not be able to find buyers to refinance them.

"Should the Treasury be unable to find buyers for an equivalent amount, a default might occur. This scenario seems extremely unlikely, given the role of the T-bill market in both domestic and global financial markets," Moody's said.

(Editing by Carol Bishopric)

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Exclusive: Fitch to decide on U.S. ratings outlook in August (Reuters)

NEW YORK (Reuters) – Fitch Ratings said on Wednesday it will decide next month whether the United States deserves to keep a stable outlook on its AAA credit rating, after it concludes a review of the country's economic and fiscal outlook.

David Riley, Fitch's main analyst for the United States, said the decision will take into account a final budget agreement in Washington to reduce the country's deficit in the medium- to long-term.

"To some extent we are a little bit on hold because we want to see what comes out from the current negotiations," Riley told Reuters in an interview.

"As soon as an agreement is reached and has been announced, we will incorporate that into our analysis and we'll make a comment on the U.S. sovereign rating and its outlook -- hopefully by the mid of August."

(Reporting by Walter Brandimarte; Editing by Chizu Nomiyama)

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