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
Friday.
"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.
