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European woes drag down Ford’s earnings

by Tyler Day
Jan 29, 2013


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Tyler Day/MEDILL

Ford shares' recent upturn was blunted by Tuesday's warning about continued troubles in the European market.

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Photo Courtesy of Ford Motor Co.

Ford hopes a healing housing market in North America will lead to increased sales for its popular line of trucks.

Ford Motor Co.’s shares slumped Tuesday after the automaker turned in stronger-than-anticipated fourth-quarter earnings -- but warned that continued struggles in the European market will take an even deeper toll on first-quarter results.

In the fourth quarter, the No. 2 U.S. automaker earned $1.6 billion, or 31 cents per diluted share, compared with a net income of $13.6 billion or $3.40 per diluted share, in the same period last year. The previous year quarter was distorted by a one-time tax gain for the company. Excluding one-time items, Ford earned $1.03 billion, or 20 cents per diluted share, in the final quarter of 2011.

Net sales rose 5.5 percent to $36.5 billion from $34.6 billion. Ford attributed the increase to a robust North American market, which helped offset stagnating sales in Asia and South America, and deterioration in the European market.

Ford’s 31 cents per diluted share results in the latest quarter exceeded the 25 cents per share analysts surveyed by Bloomberg had expected.

Nonetheless, “the results today were pretty lackluster,” said Christian Mayes, an Edward Jones industrials analyst.

“People were hoping maybe Europe was not so bad," he said. "What Ford told us today was that Europe will be losing more money.”

In Tuesday’s earnings press release, Ford emphasized the continued disarray in Europe, an area struggling with high unemployment and mounting public debt. “The business environment remains uncertain, and Ford will continue to monitor the situation in Europe and take further action as necessary,” the company cautioned.

After posting a $1.75 billion loss in Europe for 2012, Ford increased the size of the loss it expects the region to generate in 2013 to $2 billion, worse than its previous estimate of a $1.5 billion European loss.

That warning jarred investors: In New York Stock Exchange trading Tuesday, Ford shares dropped 64 cents, or 4.6 percent, to close at $13.14.

In October, Ford announced a plan to cut European capacity 18 percent. Officials remain optimistic they can reorganize its operations for a similar turnaround to match the one they accomplished in North America, when Ford was able to continue operations without requiring a U.S. government bailout in 2008.

Responding to further questions about Europe during Tuesday’s post-earnings release teleconference, Chief Financial Officer Bob Shanks said, “We don’t think that the extremely low industry is what we are going to see year in and year out.”

“It is just how we do our business everywhere in the world, not just in Europe. We are always looking to understand what is happening in the external environment – good or bad. Good, we want to take advantage of it, and if there is a challenge we react to it. That is exactly what we will do in the case of Europe.”

A healing housing market and increased oil production in North America, which officials suggested would increase the demand for Ford’s line of trucks, could also help offset the losses in Europe.

Edward Jones’ Mayes tempered the enthusiasm about the demand for trucks. “If housing recovers, that should benefit truck sales. However, that being said, the higher fuel rates go, the more people will want to buy fuel efficient cars. The profit on those cars is less than the profit on trucks.”

For the first quarter of 2013, analysts surveyed by Bloomberg expect per-share earnings of 42 cents.

For all of 2012, Ford had net earnings of $5.7 billion, or $1.41 per diluted share, compared with the prior year’s $20.2 billion, or $4.94 per diluted share, in 2011. Excluding one-time items, net income for 2011 was $5.97 billion, or $1.51 per diluted share.

Twelve-month sales fell 1.5 percent to $134.3 billion, from $136.3 billion in 2011.