News Column

Ford Posts $1.6 Billion Profit Despite Europe

October 31, 2012

By Alisa Priddle

Ford Profits

Ford reported a third-quarter net income of $1.6 billion on Tuesday, driven by its best-ever quarter in North America. Pretax profit of $2.3 billion in North America more than made up for a $468 million pretax loss in Europe, but the drag left the net results down 1% from the quarter a year ago.

Revenue was $32.1 billion for the quarter, down 3% from a year ago, and operating profit was $2.2 billion.

While Ford remains very dependent on North America, the company said it reported a profit in Asia and Africa and remained in the black in South America. Ford said last week that its total losses in Europe this year could exceed $1.5 billion -- up from a $1 billion forecast in July that had surprised analysts.

Some of the additional loss is for costs related to a plan announced last week to shutter three plants in the U.K. and Belgium, starting next year. Ford is cutting 5,700 jobs in addition to offering 500 salaried buyouts.

It could take automakers years to right themselves in financially troubled Europe, and the costs will be staggering. "It will cost Ford $1 billion to close those plants," says Art Wheaton, auto expert at Cornell University's Industrial and Labor Relations School.

"Ford is saying, 'We can't wait. We're doing something now.' It's aggressive, but it's rational and defensive," Wheaton says. "The one likely to come out ahead (in Europe) is Ford," Wheaton says, because of tough actions sooner instead of later.

The U.K. plants close next year, and Ford plans to shut its Belgian plant in 2014.

"While we are facing near-term challenges in Europe, we are fully committed to transforming our business in Europe by moving decisively to match product to demand," said CEO Alan Mulally in a statement.

The earnings per share of 40 cents beat Wall Street expectations of 30 cents and surpassed 34 cents a year ago. Ford narrowed its guidance for U.S. auto sales this year to 14.7 million. Until now, it gave a range of 14.5 million to 15 million.

As expected, the results were stronger than the second quarter, when Ford reported a 57% drop in earnings of $1.04 billion and losses in Europe that reached $404 million. Pretax earnings were $1.8 billion.

In South America, it had operating income of $9 million, below a year ago. In Asia-Pacific and Africa, where Ford is investing heavily to get a bigger foothold in the market, especially China, it had a $45 million pretax profit compared with a $43 million loss a year ago.

Ford's shift to smaller cars should get a lot of credit for its success, says Jesse Toprak, senior analyst at TrueCar.com. While Europe still struggles, "Ford's more-balanced product mix with a stronger presence in the small-car segments enabled the company to operate at highly profitable levels in the North American and emerging Asian markets."

Toprak said North American "sales are up with lower incentives spending and higher transaction prices, indicating improved profitability for the company."

Monday, Chrysler reported a third-quarter profit of $381 million, up 80% from a year ago. General Motors reports its earnings today.



Source: Copyright USA TODAY 2012