April 26 (Bloomberg) -- Ford Motor Co., the second-largest U.S. automaker, tomorrow may report that first-quarter profit slid by almost half as earnings in North America couldn’t overcome losses in the automaker’s international operations.
Net income may have fallen to $1.34 billion, the average of seven analysts’ estimates compiled by Bloomberg, down 48 percent from $2.55 billion a year earlier. Profit excluding some items may have fallen to 36 cents a share, according to the average of 17 analysts’ estimates, from 62 cents a year earlier.
Ford may have lost $225 million in Europe and Asia, according to Brian Johnson, a Barclays Capital analyst. In North America, operating earnings may have totaled $1.8 billion, as Chief Executive Officer Alan Mulally’s push to boost fuel economy paid off amid rising U.S. gasoline prices, the analyst said.
“Ford has done a very good job, marketing wise, to position itself as the fuel-economy leader among the Big Three,” said Johnson, who is based in Chicago. “But they’re facing headwinds in Europe, South America and Asia-Pacific.”
Ford has warned it may report a pretax loss exceeding $190 million in Europe for the first quarter as the sovereign debt crisis exacerbates industry overcapacity. Profit in South America is falling as competition rises. The automaker said it may report a loss in Asia as it continues recovering from last year’s Thai floods that hobbled production.
“We certainly felt a significant effect in 2011 from both of the natural disasters,” Joe Hinrichs, Ford’s Asia chief, said in an April 18 interview, referring to last year’s Thai floods and Japanese earthquake. “We continued to feel that effect in the first quarter.”
Concerns about the financial crisis in Europe and sluggish growth in China have weighed on Ford’s stock, which is down 24 percent from a year ago. Ford shares rose 1.2 percent to $11.87 at the close in New York.
“Europe remains a weak spot, and the current outlook is not likely to improve any time soon,” Peter Nesvold, an analyst with Jefferies & Co., wrote in a note yesterday on Ford’s first-quarter earnings. “This geographic theme -- stronger North America, weaker international -- is likely to be the key takeaway from Friday’s report.”
Ford bonds received a boost this week as Fitch Ratings became the first major ratings company to raise the automaker to investment grade. Ford had a so-called junk rating on its debt since 2005.
Ford ended 2011 with its 11th consecutive profitable quarter, with fourth-quarter net income of $13.6 billion, or $3.40 a share, compared with $190 million, or 5 cents, a year earlier. Ford earned $29.5 billion in the last three years after $30.1 billion in losses from 2006 through 2008.
‘Just Took Off’
Ford’s 7.45 percent bonds due July 2031 rose 4.25 cents to 126.75 cents on the dollar over the last two days in New York, according to Trace, the bond-pricing service of the Financial Industry Regulatory Authority.
“We’ve been looking at Ford debt and it just took off,” said Mirko Mikelic, a senior money manager at Fifth Third Asset Management in Grand Rapids, Michigan, which recently purchased five-year Ford notes. “We’re disappointed we didn’t pick up some equity in December, but we got concerned about what was going on in Europe.”
The risks Ford faces overseas are more than offset by its strength in North America and the lower-cost business model Mulally has instituted since he came to Ford from Boeing Co. in 2006, said Stephen Brown, auto analyst at Fitch.
“Fundamentally, they’re set up to better withstand any kind of a downturn,” Brown said in an interview yesterday. “Europe is a challenge right now, but the majority of their revenue still comes out of North America and North America is looking very good right now.”
Ford’s revenue may fall to $32 billion, the average of 11 analysts’ estimates, from $33.1 billion last year. Pretax profit may fall to $2.1 billion from $2.8 billion last year, the average of six analysts’ estimates.
Mulally has revamped Ford’s lineup with a focus on fuel economy. The subcompact Fiesta gets as much as 40 miles (64 kilometers) per gallon in highway driving, while the F-150 pickup offers two fuel-efficient V-6 engines that account for more than half of sales. From 2008 to 2011, the F-150 didn’t come with a V-6.
That leaves Ford better able to cope with rising fuel prices than in 2008, when an overdependence on trucks and sport-utility vehicles tanked the automaker’s sales and led to record losses, Brown said.
“They do still make more money on trucks and SUVs,” Brown said. “But at least today, they’re making some profits on cars and they have very competitive offerings, in particular in the smaller car ranges.”
Ford’s U.S. car and light-truck sales rose 8.5 percent to 537,822 vehicles in the first quarter, according to Autodata Corp. of Woodcliff Lake, New Jersey. The automaker’s U.S. market share fell to 15.5 percent from 16.2 percent as Japanese automakers restocked inventory and made a sales push following last year’s production interruptions due to the earthquake.
Ford’s sales and earnings will pick up speed in the second quarter, as new models such as the redesigned Fusion sedan and Escape SUV begin to arrive, Johnson said.
Ford this month raised its forecast for industrywide U.S. vehicle sales to a range of 14.5 million to 15 million, including medium- and heavy-duty trucks. The company entered the year predicting U.S. auto sales of 13.5 million to 14.5 million.
“The first quarter is off to a fast start,” Mark Fields, Ford’s president of the Americas, said in an April 4 interview. “It surprised the most astute economists.”
By borrowing $23.4 billion in late 2006, Ford avoided the bailouts and bankruptcies that befell the predecessors of General Motors Co. and Chrysler Group LLC in 2009. The automaker put up all major assets as collateral, including the Ford blue oval logo.
Ford is on the verge of recovering those assets if another major rating company raises the automaker to investment grade. Standard & Poor’s and Moody’s Investors Service each rates Ford as one step below that level.
Ford’s comeback has led to high expectations from investors, Mikelic said.
“I don’t know anybody who is saying they’re expecting Ford to post mediocre results,” he said. “The expectations have risen now that they’ve done a pretty good job getting through this crisis of the last few years.”
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