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)

View the original article here

GM profit nearly doubles, slowdown risk ahead (Reuters)

DETROIT (Reuters) – General Motors Co's quarterly profit shot past Wall Street expectations, but its share price slipped as investors focused on the risks of a sputtering economy and resurgent Japanese rivals.

GM reported second-quarter profit that nearly doubled as people paid more for new cars like the Chevrolet Cruze, and the automaker took a larger share of global sales as major Japanese competitors were largely sidelined by the March earthquake.

GM shares, which rose after the results were announced, later fell 2.6 percent in morning trading.

"It was a solid quarter that shows GM's return to health is on track," said Edward Jones analyst Matt Collins. "But with Japanese automakers getting back in the game while the economy appears to be stalling, this is probably as good as it gets this year."

Coming out of bankruptcy, GM Chief Executive Dan Akerson and other executives said the company stripped out enough costs to make the business recession proof so it could thrive even in a weak auto market.

The first major test of that claim for investors, including the U.S. Treasury, will be how GM performs if the economy slips back into recession.

"There is an increased level of uncertainty," GM Chief Financial Officer Dan Ammann told reporters. "But what we're trying to do, and what we've done successfully, is to configure the business with a low break-even point and a strong balance sheet so we can handle whatever scenario comes along."

The U.S. automaker is pushing heavily into smaller, more fuel-efficient cars like the Cruze, but still relies heavily on sales of more profitable trucks in the U.S. market.

In the second quarter, GM raised prices and reduced discounts thanks to strong sales of vehicles such as the Cruze and the Chevy Equinox and the lack of competitive pressure from the likes of Toyota Motor Corp.

Jefferies analyst Peter Nesvold called GM's quarterly performance phenomenal because of a bigger-than-expected lift from higher prices. But he also said the results were not enough to dispel investor concerns about the economy.

"The market is clearly saying, 'I don't care what you did in the first half, I want to know what you're going to do in the second half and 2012.' And the market is saying, 'Whatever you think volume and revenues are going to be, you're too high,'" Nesvold said.

'BACK WITH A VENGEANCE'

GM's gains came as its Japanese rivals struggled with fewer vehicles to sell because of disruptions to the supply of auto parts after the Japan earthquake.

GM North American President Mark Reuss, speaking at an industry conference on Thursday, said the automaker was braced for Toyota, Honda Motor Co and Nissan Motor Co to "be back with a vengeance" this year in the U.S. market.

For the second quarter, GM's net income rose to $2.52 billion, or $1.54 per share, from $1.33 billion, or 85 cents per share, a year earlier.

The earnings per share blew past the $1.20 analysts polled by Thomson Reuters I/B/E/S had projected on average.

Revenue rose 19 percent to $39.4 billion, above the $36.74 billion analysts expected.

"We believe this quarter should begin to revive momentum around the GM story," Citi analyst Itay Michaeli said.

Michaeli said the results might prompt investors to raise their valuation for a stock that has dropped by more than 25 percent since the beginning of the year.

GM emerged from bankruptcy in 2009 after a $52 billion taxpayer-funded bailout. The U.S. Treasury owns 32 percent of GM's common shares, and how it unwinds that stakes remains an unanswered question.

GM's share of global vehicle sales rose to 12.2 percent in the quarter from 11.6 percent a year earlier. Toyota's slip allowed GM to retake its spot as the largest global automaker by sales volume in the first half.

If the economy falters in the second half of the year, GM may have to raise incentives on its vehicles to lure shoppers, analysts have said.

For the second half of the year, GM expects its adjusted profit before interest and taxes to be "modestly" lower than the first half, but full-year results to be better than in 2010.

GM ended the quarter with liquidity of almost $40 billion, up from $36.5 billion at the end of June. Ammann said the company's focus would be on maintaining its "fortress balance sheet" to reinvest in the business and withstand economic shocks.

"We want to return cash to shareholders. When and how and in what form that will happen has yet to be determined," he said.

(Reporting by Ben Klayman and Kevin Krolicki in Detroit; Editing by Derek Caney, John Wallace, Dave Zimmerman)

View the original article here

MasterCard profit jumps 33 percent, beats Street (Reuters)

CHARLOTTE, North Carolina (Reuters) – MasterCard Inc said second-quarter profit jumped 33 percent, as inflation in the United States lifted spending volume and more international consumers used debit and credit cards. Shares rose as much as 9.4 percent.

The credit- and debit-card processor said signing up two big banks -- SunTrust Banks Inc and Sovereign Bank -- to offer MasterCard debit cards instead of rival Visa Inc's service helped boost revenue in the second quarter, and should help next quarter too.

MasterCard executives told analysts on a conference call that the company benefited from overseas customers using debit and credit cards instead of cash to make payments, a long-term trend. U.S. consumers spent more on gasoline and other goods because of rising prices, increasing payment volumes even as the economy weakened.

Analysts said MasterCard's expanding international business can offset a slowdown in U.S. spending in coming quarters.

"They're getting strength from other areas," said Shannon Stemm, a financial services analyst with Edward Jones.

MasterCard on Wednesday reported second-quarter net income of $608 million or $4.76 per share, up from $458 million, or $3.49 per share, a year earlier.

Analysts expected $4.23 per share, according to Thomson Reuters I/B/E/S.

Visa also beat analysts' expectations when it reported quarterly results last week.

MasterCard executives said they would alter their U.S. debit interchange fee structure in advance of new industry fee caps being imposed on those charges later this year.

The fees are charged to merchants for processing a customers' debit card transaction. The so-called Durbin amendment to the 2010 Dodd-Frank financial reform law placed a cap on those fees which takes effect later this year.

MasterCard's U.S. market chief Chris McWilton said the company would institute a two-tiered fee structure by October 1, with fees varying according to the size of the merchant. McWilton did not comment on how the new system relates to the Durbin amendment, or how it will affect revenue.

Last week, Visa said it would introduce a flat network participation fee, and lowered the per-transaction rate for processing all U.S. transactions.

REVENUE

MasterCard's revenue increased 22 percent to $1.7 billion as its cross-border and overseas business grew.

Overall, MasterCard's cross-border transactions rose 19.3 percent, and processed transactions increased 17.4 percent.

The company said it also gained from new processing business in the Netherlands and Brazil.

Total operating expenses increased 20 percent to $782 million. MasterCard said the rise was due to higher personnel costs related to acquisitions.

MasterCard shares were up 8.6 percent at $324.22 on Wednesday afternoon, off an earlier high at $326.46.

(Reporting by Joe Rauch, editing by Gerald E. McCormick, John Wallace and Matthew Lewis)

View the original article here

HSBC sheds 30,000 jobs, posts surprise profit rise (Reuters)

LONDON (Reuters) – HSBC will shed 30,000 jobs as it retreats from countries where it is struggling to compete, Europe's biggest bank said on Monday after it reported a surprise rise in first-half profit.

Shares in HSBC rose over 4 percent after it unveiled first-half pretax profits of $11.5 billion, up from $11.1 billion a year ago and better than the $10.8 billion average in a Reuters poll of analysts.

The bank also said it had cut 5,000 jobs following restructuring of operations in Latin America, the United States, Britain, France and the Middle East and that it would cut another 25,000 between now and 2013.

"There will be further job cuts," Chief Executive Stuart Gulliver told reporters on a conference call. "There will be something like 25,000 roles eliminated between now and the end of 2013."

The cuts equate to roughly 10 percent of HSBC's total workforce. They come on top of planned reductions in overall headcount in a program of disposals that also forms part of a plan to focus on HSBC's Asian operations.

The bank is reversing a strategy that had been criticized for "planting flags" around the world.

Gulliver's far-reaching plan unveiled three months ago aims to slash costs and he intends to sell, shut or slim down retail banking in 39 countries.

HSBC said on Sunday it would sell 195 U.S. branches to First Niagara Financial for about $1 billion in cash, and close another 13 of the 470 sites it had.

The bank also intends to sell HSBC's U.S. credit card portfolio, which has more than $30 billion in assets, a move which would free up capital. Capital One Financial Corp and Wells Fargo are among the bidders, sources have said.

Another suitor could be Barclays.

HSBC is the first of Britain's big banks to report for the quarter. Rivals are also cutting jobs and shaking up their business model as the euro zone debt crisis has hit fixed income trading revenues hard and tougher regulations are hurting returns for investors.

The bank on Monday highlighted risks to global economic recovery from increased regulation, particularly as governments grapple with sovereign debt crises and try to plug holes in their budgets.

"The pace and quantum of regulatory reform continues to increase at the same time as the global economy appears to be losing momentum in its recovery," HSBC said.

Shares in HSBC were up 4.3 percent at 620 pence in London at 1001 GMT, making them the second strongest performer on the blue-chip FTSE 100 index and valuing the group at around 110 billion pounds ($180.6 billion).

(Additional reporting by Tricia Wright and Blaise Robinson; Writing by Paul Hoskins; Editing by Myles Neligan and Andrew Callus)

View the original article here

JPMorgan quarterly profit rises, loan book grows (Reuters)

NEW YORK (Reuters) – JPMorgan Chase & Co posted a higher-than-expected jump in second-quarter profit as it wrote off fewer bad mortgages and credit card loans.

The second-largest U.S. bank managed to make new loans faster than customers paid off existing ones during the quarter, a reversal from the first quarter and a bright spot for a sector long plagued by weak loan demand.

JPMorgan's revenue rose and it added staff, and its shares were up 2.75 percent in afternoon trading.

But the bank still faces stiff headwinds, including big expenses from mortgages as the effects of the housing crisis linger.

Foreclosures could take another 12 to 18 months to start declining, Chief Executive Jamie Dimon said on a conference call with reporters.

"JPMorgan's revenue growth is a sign that things are getting better. They're just not getting better quickly," said Ralph Cole, portfolio manager at Ferguson Wellman Capital Management in Portland, Oregon. Ferguson Wellman owns JPMorgan shares.

Although loans at the end of the second quarter were up from the end of the first quarter, average loans outstanding during the latest quarter declined, signaling that even if loan demand is improving, growth is uneven.

JPMorgan is the first major U.S. bank to post quarterly results, and its performance gives hints about how other banks fared in the period.

BOND TRADING

Bond trading revenue fell 18 percent from the first quarter, but the decline was less than some investors had feared. Shares of investment banks Goldman Sachs Group Inc and Morgan Stanley rose on hopes that JPMorgan's trading results bode well for the sector.

JPMorgan earned $5.43 billion, or $1.27 a share, in the second quarter, beating the average Wall Street estimate by 6 cents a share, according to Thomson Reuters I/B/E/S.

The results were up from year-earlier earnings of $4.8 billion, or $1.09 a share.

The bank benefited from not having to pay a British tax on bonuses. In the year-earlier period, that tax reduced profits by $550 million, or 14 cents a share.

JPMorgan made more loans during the quarter, net of customer loan repayments. Its loan book grew to $689.74 billion at the end of the quarter from $686 billion at the end of March as increased business lending offset a 2 percent decline in consumer lending.

The bank also gathered more deposits during the quarter; deposits surged by 5 percent from the first quarter to $1.05 trillion. Chief Financial Officer Douglas Braunstein said mid-sized companies delivered much of the money.

Deposits could support more loans in the future, if there is enough demand.

Shrinking loan books and low interest rates since 2008 have made it difficult for banks to post profits, or increase them. A large part of earnings over the past year has come from setting aside less money to cover bad loans, or dipping into funds previously set aside.

Many analysts are hoping banks will start to post loan growth in the coming quarters, which would be a sign of sustainable increases in profits.

Dimon, who is famously blunt, seemed optimistic about the outlook for profits. He said the bank will build capital levels in the coming months, and criticized regulators for not allowing it to return those funds to shareholders faster.

"God knows why we have to hold all that capital," Dimon said, adding that banks' capital ratios are going "to drive up so fast people are going to be surprised."

Banks returned billions of dollars of capital to investors in 2007 and 2008, even as large clouds gathered over the mortgage market.

JPMorgan reduced the expense it recorded for credit costs to $1.81 billion in the second quarter from $3.36 billion a year earlier. However, that was up from $1.17 billion in the 2011 first quarter.

JPMorgan shares were up 2.75 percent to $40.71 in afternoon trading following the results. Stocks rose in early dealings on the bank's strong earnings but later pulled back.

TAKING TIME WITH MORTGAGES

Dimon said in the earnings announcement that mortgage costs were down slightly, but cautioned that the housing market was still working through difficulties.

"Unfortunately, it will take some time to resolve these issues and it is possible we will incur additional costs along the way," he added.

In a sign of the lingering difficulties that banks are facing with home loans, JPMorgan said it expects to have to repurchase $3.6 billion of mortgages that it packaged into bonds. Such repurchases are usually because a bank failed to properly collect payments on the mortgages, or should never have sold them to investors in the first place.

JPMorgan said it added $1.3 billion to its litigation reserves, mainly for mortgage-related matters. It also continued to add to its loan reserves for losses on mortgages.

"It is possible we are very over-reserved in mortgage land," Dimon said in a conference call with analysts.

He expects to win a legal battle with the Federal Deposit Insurance Corp over liabilities left from busted lender Washington Mutual, pieces of which JPMorgan bought in a government-arranged deal during the financial crisis.

Credit card delinquencies are improving so quickly that the bank drew down its reserves for losses on those balances, adding 15 cents a share to second-quarter profit.

The charge-off rate for uncollectable card debt will be down to about 4.5 percent this quarter, nearly a year earlier than previously expected, said Chief Financial Officer Douglas Braunstein. The improvement echoed comments Wednesday from card lender Capital One Financial Corp.

(Reporting by David Henry; editing by John Wallace)

View the original article here