Ford Motor Co reported 2009 earnings of $2.7 billion on Thursday, its first full-year profit since 2005, and said it expects a 2010 profit amid market share gains and a slow U.S. auto sales recovery.

Ford also posted a fourth-quarter profit that soundly beat Wall Street forecasts. It attributed the full-year profit in part to cost-cutting, gains from debt-reduction efforts, good results from its financing arm and stronger pricing.

The automaker repeated its forecast that 2011 would be solidly profitable, but Chief Financial Officer Lewis Booth cautioned that Ford still had to take steps to address its uncompetitive balance sheet and was watching for more signs the U.S. economic recovery would continue.

We're working hard on that, Booth said of the balance sheet. We did a lot last year and we have a lot more to do.

The single most important thing is to see the economic recovery ... continue, he told reporters. We are worried about how fragile that may be.

For the fourth quarter, Ford posted a profit of $868 million, or 25 cents per share, compared with a year-earlier loss of $6 billion, or a $2.51 per share. Revenue rose to $35.4 billion from $29 billion.

Operating profit excluding one-time items was 43 cents per share. On that basis, analysts on average expected 26 cents, according to Thomson Reuters I/B/E/S.

Ford shares were up 2.5 percent in early trading.

JP Morgan analyst Himanshu Patel said that although Ford's adjusted results were stronger than he had expected, the gain was entirely driven by volatile financial services profits.

Patel said in a note for clients that a lease-related gain in the quarter from Ford Motor Credit Co was driven by gains in used-car values that would prove unsustainable.

Ford, the only large U.S. automaker not to reorganize under a government-supported bankruptcy in 2009, gained U.S. market share last year amid the troubles of U.S.-based rivals General Motors Co and Chrysler, which is now under management control of Italy's Fiat SpA .

Ford posted losses totaling $30 billion from 2006 through 2008, including a record net loss of $14.7 billion in 2008.

The automaker said it expects its U.S. market share to remain flat or increase in 2010.

Ford's profits come as rival Toyota Motor Corp <7203.T> is mired in a crisis over faulty accelerator pedals that have led to a massive recall of top-selling vehicles and the suspension of U.S. production and sales.

Booth said it was premature to speculate on the potential impact from Toyota's problems but added: We are looking for opportunities to improve our market share in the U.S.

We are going to focus on doing it with our products, through our dealers, and as we launch more new products we will become increasingly competitive, and we would expect to get some opportunities because of that, he said.

CASH FLOW SEEN POSITIVE IN 2010

Ford reported $3.1 billion of positive cash flow in the fourth quarter from its automotive operations. With the positive cash flow in the second half of 2009, Ford's total cash burn was $300 million for the year, compared with a whopping $19.5 billion in 2008.

While the automaker was encouraged by 2009's strong cash flow, it does not see that as indicative of a normal rate as production returns to normal levels. But it expects positive cash flow in 2010.

The automaker is saddled with a much heavier debt load than GM and Chrysler, which had their balance sheets cleansed during bankruptcy reorganizations.

Ford said it ended the year with total automotive debt of $34.3 billion, up from $26.9 billion at the end of the third quarter mainly due to contributions to the retiree healthcare plan for the United Auto Workers union.

As a result of its full-year profit, the automaker plans to pay profit-sharing of about $450 each to its 43,000 eligible UAW members in the United States. It will be the first profit-sharing payment to them since 2004.

Ford previously announced that it also would pay merit increases for U.S. salaried workers.

From its automotive business, Ford posted pretax operating profits in each of its four regions in the fourth quarter, and a total of $1.07 billion overall.

The Volvo unit, which it plans to sell to Geely, had a pretax operating loss of $32 million in the quarter, much narrower than the $736 million loss a year earlier. Ford has not announced a closing date for the sale.

The No. 2 U.S. automaker had cash and marketable securities in its automotive operations of $25.5 billion at the end of 2009, compared with $23.8 billion at the end of September.

The automaker's financing arm reported net income of $440 million in the fourth quarter, compared with a $228 million net loss a year earlier. It posted net income of $1.27 billion for 2009, compared with a net loss of $1.54 billion in 2008.

Ford shares rose 2.5 percent to $11.84 in early New York Stock Exchange trading. Ford stock has jumped nearly six-fold in the past year, and its market cap now exceeds $37 billion.

(Reporting by David Bailey and Soyoung Kim; Editing by John Wallace and Maureen Bavdek)

Ford Motor Company General motors