Ford (NYSE:F) reported a 57% drop in second-quarter earnings to $1.04 billion, as growing losses from its European operations sapped a stronger performance in North America.
The Dearborn-based automaker said its automotive operating margin slipped from 7% in the second quarter of 2011 to 4.9% this year as revenue fell from $35.5 billion to $33.3 billion.
Ford continued its momentum in North America, where its pre-tax profit rose 5.3% to $2.01 billion.
But it posted a $404 million pre-tax loss in Europe, where new car sales are running at their lowest annual rate since 1995.
Ford warned that it would lose more than $1 billion this year in Europe, where some analysts have suggested it must close a plant to reduce its production capacity.
"The company recognizes the serious of the situation in Europe, and views the challenges the industry faces as more structural than cyclical in nature," Ford said in a statement. "While Ford is affected significantly because of its strong presence in the region, the company understands what is needed to achieve profitability and to generate an appropriate return on investments."
The sovereign debt crisis and sagging consumer confidence in Europe has caused troubles for Ford and GM, in particular -- but cutting production capacity will be costly and take time.
"Ford management appears to be losing patience with Europe. And they should," Morgan Stanley analysts said in a report Tuesday.
Ford Chief Financial Officer Bob Shanks told reporters the automaker has taken several short-term steps in Europe, including laying off temporary workers and implementing shorter work days. The region accounts for about a quarter of Ford's volume and revenue.
Shanks declined to discuss specific restructuring steps Ford might take in Europe, but said the company is "facing the situation with urgency."
"We don't see the issues we're facing as being cyclical in nature," he said. "This is structural in nature. We think it's a situation we're going to have to deal with for the foreseeable future. It's going to take quite a long time for Europe to work through all of these issues."
Ford's stock fell to $8.95 on Wednesday, its lowest point since December 2009, before closing at $9.06.
For the second quarter, Ford posted earnings per share of 30 cents on pre-tax operating profit of $1.83 billion, beating analysts' expectations of 28 cents.
In North America, where the company is earning essentially all its profit, Ford's operating margin rose from 9.8% to 10.2%.
Ford posted a 6.9% increase in vehicle sales in the first six months of the year, with a strong performance for the critical F-150 Series pickup trucks and vehicles like the Explorer and Focus.
"The Ford team delivered another solid quarter driven by the strength of Ford North America and Ford Credit," Ford CEO Alan Mulally said in a statement. "We remain absolutely committed to continuing to make progress on our One Ford plan, including dealing decisively with near-term challenges, investing for future growth and developing outstanding products with segment-leading quality, fuel efficiency, safety, smart design and value."
In South America, Ford recorded a $5 million pre-tax profit, down considerably from $267 million a year earlier. In Asia and Africa, it lost $66 million after a $1 million profit a year earlier. Ford posted a loss of $163 million in its "other automotive" segment, mostly because of interest costs and losses associated with its investment in Mazda.
Ford Motor Credit, the company's financing unit, reported a pre-tax profit of $438 million, down from $604 million.
Ford's automotive debt rose from $13.7 billion at the end of the first quarter to $14.2 billion at the end of the second, which the company attributed to "additional drawdowns of low-cost loans for the development of advanced vehicle technologies."
In Europe, where Ford projects annual industrywide sales of 14.3 million vehicles, the automaker originally projected a loss of $500 million to $600 million this year.
Shanks said Ford's competitors -- particularly the Germany automakers -- are pumping up incentives in fight for market share.
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OCTOBER 30, 2014
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