Ford Motor Co. executives are encouraged with the auto maker’s first-quarter net income of $2.1 billion, but warn the road ahead is fraught with obstacles that could stall momentum.

In the key North American market, Ford posted a pre-tax operating profit of $2 billion, or 46 cents per share, marking an improvement of $4 billion from year-ago and besting many analysts’ predictions.

North American first-quarter revenue was $14.1 billion, up from $10.0 billion in like-2009.

Chief Financial Officer Lewis Booth says the auto maker’s first-quarter performance has given him the confidence to revise his earlier forecast for 2010.

“We we’re saying we expected to be profitable in 2010,” he says. “This is a more encouraging start than we anticipated, and we now feel confident about saying we’ll be solidly profitable – so we pulled away the adjective.”

U.S. market share for Ford, Lincoln and Mercury products in the first-quarter was 16.6%, up 2.7 points from year-ago. Retail share was 14.1%, up 1.5 points.

However, rising commodity costs and a still shaky supply base are areas of concern, Booth says.

“We expect to see some bad news on commodities,” he says during a conference call with reporters and analysts. “We’ll work with suppliers to make material costs savings and that will continue.

“And as we sort of globalize Ford, we’re seeing real benefits of a global supply base and getting economies of scale,” Booth adds. “We still expect some supplier rationalization ahead of us. The number that went out of business in the down period was not as many as we expected.”

Ford of Europe also turned in a strong quarter, reporting a pre-tax operating profit of $107 million, compared with a $585 million loss in like-2009.

Ford achieved a 9.4% European market share for the quarter, and in March the Blue Oval was the best-selling nameplate in the 19 markets the auto maker tracks.

But whether that success can be carried forward remains a concern, especially as numerous European vehicle scrappage programs come to an end, Booth says. Overall, Ford expects its share this year to remain flat with 2009.

“We’re keeping a very close eye on incentive spending in Europe,” he says. “(Spending) is up sequentially, which reflects a couple of things. Natural demand has gone down, and in some cases our competitors are trying to match scrappage incentives with their own. We’re keeping a close eye on that.”

Ford First Quarter
Financial Results
2010 2009 % Chg.
Sales $28,100 $24,400 15.2
Net Income $2,085 ($1,427) 246.1
E/S $0.50 ($0.60) 27.1
Unit Sales 1,253 986 27.1
Note: Dollar sales and net income stated in millions; unit sales in thousands. E/S is earnings per share. Unit sales are worldwide wholesale deliveries.

Despite challenges, Booth says Ford has upped its industry volume forecast for Europe from 13.5 million-14.5 million units, to 14 million-15 million because of the strong first-quarter. “But we still expect to see a significant volume drop, and if we don’t it will be because of increased incentives.”

Ford predicts its full-year U.S. total market share and U.S. retail share will be equal to or improved from 2009. The auto maker has increased its second-quarter North American production plans, and now expects to build 625,000 vehicles, up 174,000 from year-ago and 30,000 from prior guidance.

The Asia/Pacific and Africa region posted a pre-tax operating profit of $23 million in the quarter, compared with prior-year’s loss of $97 million. Revenue was $1.6 billion, up from $1.2 billion year-ago.

Much of the success came courtesy of a 61% sales increase in China and a 33% jump in India, Booth says.

In South America, Ford reported a pre-tax operating profit of $203 million, compared with a profit of $63 million in like-2009. Revenue was $2 billion, up from $1.4 billion year-ago.

Ford’s market share in South America was 10.7%, down slightly from year-ago, but up compared with fourth-quarter 2009. The auto maker recently announced plans to increase investment in Brazil and Argentina by $450 million to more than $2.6 billion by 2015.

Ford in March entered into an agreement to sell its Volvo Cars subsidiary to China’s Zhejiang Geely Holding Group for $1.8 billion.

As a result of the pending sale, expected to close in the third-quarter, all of Volvo’s 2010 results now are being reported as special items, and are excluded from Ford’s operating results, the auto maker says.

If Volvo had continued to be reported as an ongoing operation, Ford would have posted a first-quarter pre-tax operating profit of $49 million for the Swedish brand, Booth says.

Ford ended the quarter with $25.3 billion in automotive cash, an increase of $400 million from year’s end.

Ford wholesaled 1.3 million vehicles in the quarter, compared with 986,000 year-ago. Worldwide automotive revenue was $25.4 billion, up from $21 billion in like-2009.

bpope@wardsauto.com