Ford Overseas Progress Helps Profit as Outlook ImprovesCraig Trudell
Ford Motor Co. earned a rare profit from its overseas operations on rising demand for Focus compact cars in China and B-Max vans in Europe and boosted its outlook for the full year.
Ford raised its forecasts for total company pretax profit and operating margin for the full year after posting a third-quarter profit excluding one-time items of 45 cents a share, beating analysts’ estimates. The Dearborn, Michigan-based company’s automotive sales rose 12 percent to $33.9 billion.
Chief Executive Officer Alan Mulally turned around Ford’s North American operations by broadening its lineup with more competitive cars. The 68-year-old CEO’s plan to develop nearly identical vehicles across global markets paved the way for shrinking losses in Europe and steady profit in Asia, with Chinese buyers making Focus the world’s top-selling car name.
“The breadth and the depth and the quality of the growth is very exciting for us,” Chief Financial Officer Bob Shanks told reporters today at Ford’s headquarters. The company’s vehicle deliveries, revenue and market share increased in all four of its regions.
Ford rose 1.4 percent to $17.76 at the close in New York. The company’s market capitalization was almost $70 billion. Since 1999, Ford’s market value finished above that level for three days in 2011. The shares have surged 37 percent this year, compared with a 23 percent gain for the Standard & Poor’s 500 Index.
The automaker reported third-quarter net income of $1.27 billion, including one-time costs that are part of Ford’s revamping in Europe, down from $1.63 billion a year earlier. The average estimate of 15 analysts was for an adjusted profit of 37 cents a share.
The results show continued progress in Mulally’s repair job that began after he joined from Boeing Co. in 2006 and tempers concern that the company would suffer should he leave early. Microsoft Corp. board members have spoken with the executive about being a candidate for its next CEO, people with knowledge of the talks have said.
“There’s nothing that has changed our plan that we announced last November,” Mulally said today on a conference call, referring to a plan that he will stay with the company through at least 2014. “I’m clearly excited and honored to continue to serve Ford.”
Mulally turned over key management duties including the leading of Ford’s main weekly meeting of executives to Chief Operating Officer Mark Fields, 52, in November.
“The heavy lifting has been done in North America, they’re working through their issues in Europe, and the China growth strategy is in place,” said Michael Razewski, a New York-based principal at Douglas C. Lane & Associates, which oversees $3.4 billion including Ford shares. “This isn’t necessarily a business that needs to be transformed anymore.”
Ford said it now expects total company pretax profit and automotive operating margin to be higher than last year. The company previously said profit would be about equal or higher and margin would be about equal or lower. In Europe, Ford now forecasts a full-year loss of less than $1.8 billion, a smaller deficit than it previously estimated.
“Europe losses have shrunk significantly excluding restructuring, raising the possibility of a near-break-even result in 2014,” Adam Jonas, a New York-based analyst for Morgan Stanley, wrote today in a report. Analysts may raise their earnings per share estimates for next year to about $2, he said, up from the $1.78 average estimate of 16 analysts surveyed by Bloomberg.
Ford earned a $2.3 billion quarterly profit in North America. Its third-quarter operating margin of 10.6 percent in the region compares with 12 percent a year earlier.
Ford’s net pricing improved by about $100 million from a year earlier in North America, a smaller gain than in recent quarters. Smaller improvements in pricing should be expected going forward, Shanks said today.
“The big gaps that we used to have versus our competitors are gone, for the most part,” he said. “We still have gaps on Lincoln that we’ll work on over coming years as we work that particular plan. But those big discounts that we had on the Ford plan are largely gone.”
Ford this week said it has scheduled two weeks of down time at its factory that assembles the Focus compact and C-Max hybrid cars to trim inventory after U.S. light-vehicle sales fell 4.2 percent in September, the first industry drop in 27 months. Separately today, Shanks said Ford is seeing “some potential reaction” by consumers to the 16-day U.S. government shutdown and the struggle to lift the country’s debt limit.
“Fiscal policy and uncertainty poses a risk,” Mulally said on today’s conference call.
Ford’s operations outside North America earned about $57 million, the company’s best result on that basis since the second quarter of 2011. Ford’s global automotive operating margin improved to 7 percent, also the best in more than two years.
“What everybody is waiting to see is can you get the rest of the business moving in the right direction,” Shanks said of the company’s operations outside North America. “A lot more work to do, obviously, but the progress and the direction is what’s really exciting.”
A prolonged slump in Europe, where Ford is undergoing a multiyear restructuring, is beginning to moderate, with the biggest industry sales increase in more than two years in September. The company’s 0.2 percentage point increase in quarterly market share in Europe from a year earlier was more than explained by demand for B-Max, Shanks said.
The operating loss for Ford’s European operations narrowed to $228 million during the third quarter, from $468 million a year earlier.
Ford’s outlook on Europe has improved from its July forecast that results would be in line with last year’s loss of about $1.8 billion. Shanks today reiterated that the company expects to turn a full-year profit in 2015 in the region, as Stephen Odell, the head of the company’s European operations, told reporters last month at the Frankfurt Motor Show.
“I wouldn’t write home about it yet, but we saw a little bit of improvement in pricing” in Europe, Shanks said today. “We have reached a level of stability.”
Ford’s Asia Pacific Africa operations earned $126 million in the quarter, up from $45 million a year earlier. The automaker said yesterday that its Focus compact remained the top-selling car in the world on rising demand in markets including China, Indonesia and Thailand. Toyota Motor Corp. disputes that Focus holds the top global spot, citing Corolla derivatives such as the Matrix that give its car a lead.
“What Ford has done in Asia has been pretty remarkable,” said Razewski, whose firm counts Ford and GM among its top five holdings. “They came in late to the game and they’ve been able to scale up and achieve profitability in a short period of time. It demonstrates how good they are at executing.”
Ford is targeting 5 percent market share in China during the fourth quarter, David Schoch, president of Ford Asia Pacific, told reporters earlier this month. That would double the share that Ford captured in the world’s largest auto market in the first quarter of 2012.
“That’s what investors are buying -- they’re buying that future growth,” Kevin Tynan, an auto analyst for Bloomberg Industries in Skillman, New Jersey, said before Ford released its results. “If you align the top players globally and where their white space is, Ford has probably the best potential.”
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