Ford Motor Co.'s third-quarter net income rose 68 percent as it grabbed a bigger share of the U.S. auto market and buyers paid more for its highly-rated cars and trucks.
It was Ford's sixth straight quarterly profit and the company's best third-quarter performance since at least 1990.
Ford CEO Alan Mulally said popular new cars, such as the Ford Fiesta subcompact and Ford Edge wagon, and aggressive cost-cutting helped the company make money despite lower global sales.
The automaker said it expects to end the year with as much cash as it has debt, a year earlier than it had previously forecast.
Ford, which four years ago mortgaged its factories, blue oval logo and other assets to fund a huge restructuring, said it paid off $2 billion in debt in the third quarter and expects to pay off an additional $3.6 billion for retiree health care on Friday. Ford's debt will stand at $22.8 billion after those two actions. It has $20.3 billion in cash.
When Ford pays its debt to the United Auto Workers health care trust, it will no longer owe the trust any money. The UAW agreed to the trust in 2007, and it began paying health care benefits for 195,000 retirees and spouses in January. The automaker was paying a 9 percent annual interest rate on its obligation to the trust.
Ford also said it is launching an offer to convert $3.5 billion in debt to common stock. The offer closes Nov. 23.
Ford's earnings of $1.7 billion, or 43 cents per share, beat Wall Street estimates.
Without one-time items, which included a $102 million charge related to Ford's sale of Volvo, Ford would have earned 48 cents per share. Analysts polled by Thomson Reuters had forecast earnings of 38 cents per share. Those estimates typically exclude one-time items.
In the same quarter a year earlier, Ford earned $1 billion, or 26 cents per share.
Ford's quarterly revenues fell $1 billion, or 3 percent, to $29 billion for the quarter. But Ford said if Volvo's 2009 revenues were excluded, revenues rose $1.7 billion.
For the first three quarters of the year, Ford made $6.4 billion. The company also said it expects all of its regions to be profitable in the fourth quarter and for all of 2011.
In the third quarter, Ford's European operations posted a $196 million loss, compared with a $131 million profit a year ago, but all other regions made money.
Ford Motor Credit Co., the company's auto loan arm, made $497 million for the third quarter and contributed $1 billion to the parent company.
The Dearborn, Mich., automaker offered to convert $3.5 billion in bonds that pay 4.25 percent interest to shares of common stock. The notes, held mainly by hedge funds and other institutional investors, were due in 2016 and 2036.
The company said it doesn't know how many debtholders will take the offer, but if all of them do, it will pay them off with 372 million in previously authorized shares that had not been sold.
Treasurer Neil Schloss said there should be no dilution of the current shares since the shares being used to pay the debt are already on the books.
Ford shares were down 2 cents to $14.13 in morning trading.
Schloss said once Ford repays the UAW trust, it will have reduced debt this year by $10.8 billion, saving roughly $800 million in annual interest costs. The figure does not include the $3.5 billion in notes.
Despite the repayments, the company still must continue to work on its balance sheet, paying down debt as it generates operating cash, Chief Financial Officer Lewis Booth said.
He said the company is getting better prices for its vehicles around the world, especially as it rolls out new models. Ford is either getting customers to pay higher sticker prices or it has reduced the amount of incentives it has to offer to get people to buy, Booth said.
"The strength of the product is propelling our business results," he said.
Booth also said raw material costs have risen $1 billion this year over last, about what the company expected.
Despite the strong performance, Ford still faces challenges.
A Credit Suisse analyst wrote last month that the automaker's global pension funds were $12 billion underfunded at the end of last year, and that could worsen to $17.5 billion by the end of this year.
Analyst Chris Ceraso said that if tax discount rates expire and asset returns don't improve, Ford could be facing a $900 million increase in pension expenses in 2011, shaving 15 to 20 cents per share off the automaker's earnings.
Ford has said it will make around $1.5 billion in pension payments this year and next, and it doesn't expect the payments to significantly affect earnings.