Fears of greater losses in Europe this year spooked the market Tuesday, overshadowing Ford's strong fourth-quarter and full-year 2012 results that exceeded Wall Street's expectations.
Strong North American profits, which trigger record profit-sharing checks averaging $8,300 before tax for 45,800 U.S. hourly workers, offset European losses in 2012. But guidance that Europe will likely lose $2 billion this year -- more than the $1.75 billion lost in 2012 and more than Ford officials anticipated -- resonated deeply among nervous investors.
Ford stock closed at $13.14 Tuesday, down 64 cents, in stark contrast to the 32% gains the stock made in the final quarter of 2012.
"Ford provided 2013 guidance, which brings overly optimistic investor expectations back in check," Brian Johnson of Barclays wrote in a note following the earnings release.
But not everyone was skittish.
"We would not get too caught up in the very near term," said Peter Nesvold of Jefferies. "One has to believe the shares have tremendous upside if Ford comes even close to replicating its North American restructuring success in Europe."
Ford executives said they expect to repeat the nearly $8.3-billion pre-tax 2012 profit in North America.
The automaker reported fourth-quarter net income of $1.6 billion. A robust $1.9-billion pre-tax profit in North America and a modest $213-million profit in South America more than offset a $732-million loss in Europe.
Total 2012 net income was $5.7 billion or $1.41 per share, beating the average of analyst estimates of $1.34.
That compares with net income of $20.2 billion in 2011, but that was skewed by a onetime non-cash accounting gain of $12.4 billion. Excluding that adjustment, Ford's 2011 net income was $6 billion.
The Ford team "delivered strong results once again," said CEO Alan Mulally, adding the company is "well-positioned for another strong year in 2013."
Mulally had previously warned Ford would not match 2011 profits or market share in North America and Europe. But he said 2012 will generate increased cash flow with higher market share in North America and China.
Stronger pickup demand and a full-year of Escape and Fusion sales should enable Ford's North American profit margin to be about 10%, similar to 2012's 10.4%. Margins fell to 8.4% in the fourth quarter from 12% in the third. Ford has said it wants to achieve profit margins of 8%-10% in North America over the long term.
Chief Financial Officer Bob Shanks said margins will be capped by about $1.2 billion in unavoidable costs, including health care and the end of depreciation on certain assets.
Ford also will try to reduce its $18.7-billion pension underfunding. That gap rose from $15 billion at the end of 2011. Ford plans to contribute $5 billion to the pension fund this year. The pension funds will be fully funded by mid-decade, Shanks said.
There will be additional costs tied to launching vehicles and adding capacity in North America. Some of that could be offset by lower material costs, Shanks said.
North America's strength will offset losses of about $2 billion projected for Europe, where new car sales are expected to hit bottom before rebounding in 2014. Shanks said the company is still on track to break even in Europe and generate a profit by mid-decade.
Ford has put plans in motion to close three plants by the end of 2014, reduce the headcount by 6,200 workers and consolidate manufacturing in the region.
South America ended 2012 with $213 million in earnings and is forecast to break even this year. A better product mix will be tempered by trade and currency issues, especially in Venezuela and Argentina.
Ford had a $39-million fourth-quarter pre-tax profit in Asia-Pacific, but ended the year with a $77-million loss as the company continues to expand.
Shanks said there are seven plants under construction to double capacity in Asia by mid-decade, but not enough revenue to cover the short-term cost.
Distributed by MCT Information Services
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