DETROIT -- Ford Motor Co. reported a decline in second-quarter profits today. The automaker was hurt by rising commodity prices and higher product development costs.
Ford said net income was $2.4 billion on revenues of $35.5 billion, excluding Volvo, during the second quarter.
A year ago, Ford posted net profits of $2.6 billion on revenue of $35.07 billion, including Volvo. Excluding Volvo, Ford's revenue in the second quarter of 2010 was $31.3 billion.
In Europe, where Ford's performance has been lagging in recent quarters, pretax profit was trimmed nearly in half to $176 million.
CEO Alan Mulally said in a prepared statement: "We delivered very good second-quarter results while growing the business globally and serving more customers in every region. Despite an uncertain business environment, we further strengthened our balance sheet and continued to invest for the future."
Ford ended the quarter with $22 billion of automotive gross cash, an increase of $700 million compared with March 31. Ford's debt fell $2.6 billion to $14 billion.
"We're off to a really good first half," Lewis Booth, Ford's CFO, said in a media briefing. "We're now at $14 billon of debt and now at net cash of $8 billion, which is a substantial improvement in the first half."
Net cash refers to gross cash, which at Ford stood at $22 billion on June 30, minus debt.
Booth stopped short of predicting when Ford would earn an investment grade credit rating.
He noted that the rating agencies have made it clear they want the automaker to meet several requirements, including resolving contract talks with the United Auto Workers union in the U.S. this summer.
But Booth said if Ford continues to report profits and reduce debt, "We expect to get to investment grade sooner rather than later."
Booth added, "It wasn't an easy quarter." He said demand weakened in North America after the March earthquake in Japan interrupted production for many automakers. Even though Ford's production was minimally impacted, a shortage of cars kept some shoppers out of the market in both North America and Europe.
U.S volume outlook
Ford is maintaining its U.S. full-year industry volume outlook in the range of 13 million to 13.5 million units, Booth said.
"We expect it to be closer to 13 million," he said. Several analysts have lowered their outlooks to below 13 million, citing sluggish economic growth and earthquake-related inventory shortages.
Booth added there will be some improvements in the second half as Japanese production ramps up.
"We expected a relatively quiet year this year and that's what we're going to see," he said.
All oil-driven commodity prices -- including steel, aluminum and plastic -- remain under upward pressure, Booth said. He reiterated Ford's guidance that its commodity costs would be $2 billion higher this year than last year.
Europe profit falls
Pretax profit in Ford's European operations fell to $176 million, a decrease of $146 million from a year ago.
Ford said higher commodities, increased structural costs and "adverse" changes in dealer stocks were the reasons for the profit decrease. The company said it had to replenish dealer stocks in 2010 second quarter following the end of scrappage programs, compared to dealer stock declines in second quarter of this year.
Ford's European revenue was $9 billion, up $1.5 billion from last year's second quarter. Wholesale volume in the second quarter was 422,000 units, about the same as a year ago.
Globally, Ford posted first-quarter net profits of $2.55 billion on revenues of $33.11 billion and said in April it would be the best quarter this year because it planned to hike spending in following periods.
Ford has budgeted $5 billion to $5.5 billion in capital outlays this year, with the bulk of it taking place after the first quarter.
In the second quarter, Ford North America reported a pre-tax operating profit of $1.9 billion, an increase of $10 million from a year ago. Ford attributes that rise to improved net pricing, higher volumes and a more favorable mix of vehicles, meaning more sales of higher-margin cars and trucks.
Those positives were offset by higher commodity and structural costs, as well as increased spending on new products.
Ford's second-quarter net also was dragged down by special losses of $272 million, $177 million more than a year earlier. The special losses covered personnel-reduction actions, the closing of its Mercury brand and other dealer-related actions in North America, and pension settlements in Belgium.
Ford sold 736,000 vehicles to dealers in the quarter, up 77,000 from a year earlier. North American revenue was $19.5 billion, up $2.6 billion from a year earlier.
Ford said second-quarter profits declined in its South America and Asia Pacific Africa operations, as well as Europe.
U.S. vehicle sales slowed across the industry during the second quarter compared to the first quarter because of inventory shortages and slower economic growth.
Ford's U.S. sales rose 9 percent during the period to 574,228 units.
"The key debate around Ford continues to be the sustainability of -- or potential for improvement in -- North America pretax profits," Barclays analyst Brian Johnson said in a report Monday.
Johnson and other analysts say Ford remains vulnerable to industry pricing trends, sales volumes, higher commodity costs, and increased structural costs.
Editor's note: Earlier versions of this story incorrectly quoted CFO Lewis Booth's reference to Ford's cash.
Paul McVeigh and Reuters contributed to this report