Ford Motor Co posted a $2.3 billion quarterly net profit, mainly due to gains from a $10 billion debt reduction plan, and said it was on track to at least break even in 2011, sending its shares up as much as 9.7 percent.

Ford's operating loss narrowed from a year ago and was better than analysts had expected, despite poor global markets that helped push General Motors and Chrysler into bankruptcy.

Ford has not taken U.S. government emergency loans.

Referring to the overall market, Chief Executive Alan Mulally said on a conference call, We believe it is going to start to come back, led by the GDP in the United States in the third quarter and pick up a little momentum in the fourth quarter and next year, but clearly this is still a very fragile economy.

An overall and North American profit in 2011 would be the first for Ford since 2004.

In the second quarter, Ford posted a net profit of 69 cents per share compared with a net loss of $2.7 billion, or $3.89 per share, a year ago.

Excluding a net gain of $2.8 billion mainly from debt reduction, Ford's operating loss narrowed to $638 million, or a loss of 21 cents per share, from a loss of $1.4 billion, or a loss of 63 cents per share, a year ago.

Analysts, on average, had expected a loss of 50 cents per share on that basis, according to Reuters Estimates.

Revenue fell to $27.2 billion in the quarter, from $38.2 billion a year earlier. Analysts had expected $23.39 billion.

Ford said its auto business burned through $1 billion cash in the second quarter compared with $3.7 billion in the first quarter. It said it expects cash flow to improve over the remainder of 2009.

The cash burn is really being wiped off quickly, said Erich Merkle, president of auto consulting firm Autoconomy.com. They are well ahead of schedule. I think Ford returning to profitability will be sooner than most expect.

Ford cut its automotive debt by about $10 billion by using cash and stock to buy back debt in transactions completed in April, lowering annual interest expense by more than $500 million. It raised $1.6 billion through a stock offering in May, which it used mainly for a U.S. union retiree healthcare trust.

EYES ON CASH, DEBT

Ford executives have said the company has enough liquidity to complete a turnaround plan, leaving investors focused on cash preservation and debt reduction.

The automotive business ended June with $21.0 billion in cash and $26.1 billion in debt, compared with $21.3 billion in cash at the end of March and $32.1 billion in debt.

Ford borrowed $23 billion in 2006, secured by most of its remaining assets including its Blue Oval logo, to support its restructuring and now carries a heavier debt load than post-bankruptcy GM and Chrysler.

Bank of America Merrill Lynch analyst John Murphy wrote in a note on Thursday that borrowing in 2006 and debt recapitalization in 2009 had positioned Ford's balance sheet relatively well.

Mulally has recognized what was right at Ford and leveraged it, putting Ford in a strong position relative to its competition, Murphy wrote.

Ford had total losses of $30 billion from 2006 through 2008, including a company record of $14.7 billion last year, and reported a $1.43 billion loss in 2009's first quarter.

Based in Dearborn, Michigan, Ford has been navigating a U.S. downturn now in its fourth year, with industry sales at their worst levels in three decades.

Ford's U.S. sales fell about 33 percent in the first half of 2009, the best among the six top-selling automakers.

Ford expects U.S. auto industry sales of 10.5 million to 11 million vehicles in 2009, including medium and heavy duty trucks. Ford's planning assumptions for 2010 call for U.S. industry sales of 12.5 million vehicles next year.

The company is restructuring to be profitable in a smaller U.S. auto market and to meet expected increased preference for cars over SUVs and pickup trucks.

About 1,000 hourly employees accepted buyouts or early retirement in Ford's latest offer, leaving the company with about 47,000 hourly workers. Ford had said it is comfortable with that number.

The company is in talks with the United Auto Workers Union on other issues to give it labor cost parity with competitors.

Ford has sold several its Aston Martin, Jaguar and Land Rover brands to raise cash and focus operations. It is also entertaining offers for its Swedish brand Volvo, which would leave it with its Ford, Lincoln and Mercury brands.

Ford Credit, the company's financing arm, reported net income of $413 million in the quarter compared with a net loss of $1.4 billion a year ago.

Ford shares were up 49 cents or 7.68 percent at $6.87 on Thursday on the New York Stock Exchange.

(Reporting by David Bailey and Soyoung Kim; Editing by Gerald E. McCormick, Maureen Bavdek and Matthew Lewis)

Ford Motor Company