Ford's second-quarter profit will fall from a year earlier because it is
losing more money than expected outside North America, the automaker disclosed
"Our operations outside of North America are under increasing pressure," Ford said in a filing with the Securities and Exchange Commission. "In fact, our combined results for the second quarter for Ford South America, Ford Europe and Ford Asia Pacific Africa could be a loss of about three times as much as the $190-million pretax loss incurred by these operations in the first quarter."
The Dearborn automaker will be profitable globally because of the strength of its North American business.
On a day when the Dow Jones Industrial Average soared 277 points, Ford shares tumbled 5% Friday to $9.59, its lowest closing price since last Oct. 3. Trading volume of 137.1 million shares was more than three times the daily average.
"The profit warning is a double dose of reality and politics," analysts at Morgan Stanley Research said in a report. The bank cut its estimate of Ford's second-quarter earnings-per-share to $0.23 from $0.33, and to $1.30 from $1.52 for the full year.
"European fundamentals in the mass market are rapidly deteriorating. Ford enters the club of automakers with immediate needs to address excess capacity through near-term action," the Morgan Stanley report said. "We now expect Ford Europe losses to exceed those of GM's Opel."
Morgan Stanley estimates Ford is running its five European plants at 63% capacity compared with 66% at GM and 57% for Fiat.
S&P Capital IQ is recommending its clients buy Ford stock despite the negative tone of Friday's guidance.
Ford filed the disclosure after Chief Financial Officer Bob Shanks shared insights in an interview with the New York Times.
The company cautioned investors in April that higher costs of launching a number of new models and adding shifts at five U.S. factories will affect profits. It also is building factories in Asia Pacific, especially China, which will take time to pay off.
But the biggest problem is Europe.
All automakers in Europe are operating more plants, assembling more cars than European consumers can afford to buy. Automakers, unions and European governments have been unwilling to close plants.
South America is also facing pricing pressures with weakening currencies and changes in public policy that are affecting trade in the region. Ford exports the Fiesta and Fusion from Mexico to other Latin American nations because of favorable trade policies between the regions.
The deteriorating performance outside the U.S. "bodes poorly for automakers and suppliers," said S&P Capital IQ analyst Efraim Levy. Slowing growth rates in South America and China also are concerns.
"U.S. results, however, remain a bright spot, even though growth could slow," Levy wrote.
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