Ford posts $1.6B quarterly profit, predicts wider losses in Europe
North America remains bright spot; U.S. market-share gain seen
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Ford expects to gain market share in North America this year based on stronger pickup sales and the fact that 2013 will be the first full year the redesigned Fusion and Escape have been on sale. The C-Max is also expected to help boost Ford's U.S. share. Photo credit: REUTERS |
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DETROIT -- Ford Motor Co. posted fourth-quarter net income of $1.6 billion, carrying the company to its fourth straight full-year profit.
Excluding a large year-earlier extraordinary gain, net in the latest quarter rose 55 percent, powered by strong results in North America. European pretax losses of $732 million dragged down quarterly profits.
Ford said that it will incur higher costs in Europe due to restructuring actions and investments in new vehicles there. It predicted a European loss in 2013 of about $2 billion, vs. an earlier forecast of a loss roughly equal to 2012's, which came in at $1.75 billion.
Overall revenues in the latest quarter rose 5 percent to $36.5 billion. Pretax profits, excluding the year-earlier special gains, rose 52 percent to $1.68 billion.
For the full year, net income fell 72 percent to $5.67 billion. But it fell just 5 percent if the extraordinary gain of the fourth quarter of 2011 was excluded. Annual revenues slipped 1 percent to $134.3 billion. Pretax profits fell 9 percent to $7.97 billion.
"The Ford team delivered strong results once again, underscoring that our One Ford plan is working," CEO Alan Mulally said in a statement. "We are well positioned for another strong year in 2013."
Including the extraordinary accounting gain in the year-earlier quarter, net earnings in the fourth quarter tumbled 88 percent.
Ford expects overall profits to be about the same in 2013 as 2012, CFO Bob Shanks told reporters today.
"We expect to see higher profits from North America and expect South America and Asia Pacific to break even," he said. "We're expecting a higher industry in the U.S. and China and a lower industry in Europe" in unit sales.
North America shines
North America was once again overwhelmingly the company's profit center.
Ford's North America region posted pretax profits of a record $1.87 billion in the fourth quarter, more than double the year-earlier level, and a record $8.3 billion, up 35 percent, for all of 2012. The records were the highest since the company began listing North America as a separate region in 2000.
Revenues rose 13 percent to $22.1 billion in the fourth quarter and 7 percent to $79.9 billion in 2012.
In New York Stock Exchange trading on Tuesday, Ford shares closed down 64 cents at $13.14, after dropping to $12.89 earlier in the day, the lowest intraday price since Dec. 31.
Ford expects to gain market share in North America this year based on stronger pickup sales and the fact that 2013 will be the first full year the redesigned Fusion and Escape have been on sale. The vehicles compete in two of the industry's biggest segments.
"We're going to benefit from that," Shanks said. "We're going to benefit from a stronger industry including stronger full-size pickup segmentation."
Ford said the sharp rise in North American profits was mainly due to the favorable market and comparison with a year-earlier quarter when the company was paying ratification bonuses to its hourly workers, following agreement on a new contract.
For 2013, Ford expects its strong North American results to continue, with pretax profits expected to be higher than in 2012, and an operating margin of "about 10 percent."
2013: Europe's trough?
"We think Europe will be perhaps even lower than we thought," Shanks said, due in part to continuing high unemployment in some regions, particularly in southern Europe.
Later, in a conference call with reporters and analysts, Shanks reiterated his forecast for a $2 billion loss in Europe in 2013, and said, "We do think this will be the trough not only for the industry but for our profitability. We would expect to see the industry begin to recover in 2014 and our profits begin to recover."
Ford said it now expects European industry sales volume this year to be in the lower end of the range of 13 million to 14 million units. In addition, Ford said it is being hurt by higher pension costs due to lower interest rates, and a stronger euro.
In Europe, Ford's fourth-quarter pretax operating loss of $732 million widened sharply from a loss of $190 million a year earlier.
For all of 2012, Ford's pretax loss of $1.75 billion in Europe compared with a loss of $27 million a year earlier, as the region's economy remained mired in the ongoing debt crisis.
European revenues dropped 22 percent in the quarter to $6.5 billion, and 21 percent to $26.6 billion in 2012.
Ford is employing the same strategy to dig out of its European hole that it used in North America: closing factories to trim capacity while at the same time investing in a new generation of products.
Ford said last year that it would close three European plants: two in England and one in Genk, Belgium.
In an interview with Bloomberg during the Detroit auto show in early January, Shanks predicted that Ford's European losses will begin to disappear in about two years.
"Even with a no-change bottom line in Europe in '13 versus '12, we're well on our way in terms of a transformation that will get that part of the business back on track," Shanks said. "We didn't fix North America in six months. It took years. The same thing will happen in Europe."
At the Automotive News World Congress this month, Mulally said of Europe: "We think we can be profitable, with the restructuring actions that we've taken and all the new products that we're introducing, by mid-decade."
Other regions
In South America, Ford reported a fourth-quarter pretax operating profit of $145 million, up 34 percent, on revenues of $3.1 billion, up 11 percent.
But full-year pretax profits fell 75 percent to $213 million, as revenues dropped 8 percent to $10.1 billion.
In its statement, Ford cautioned that "government actions to incentivize local production and balance trade are driving trade frictions between South American countries and also with Mexico, resulting in business environment instability and new trade barriers."
Ford's Asia Pacific Africa region swung to a $39 million pretax profit in the fourth quarter, vs. a loss of $83 million a year earlier, Revenues shot up 47 percent to $2.8 billion as Ford introduced several vehicles in China, including the Focus.
For the year, though, Asia Pacific Africa swung to a pretax loss of $92 million from 2011's profit of $122 million, even as revenues grew 19 percent to a record $10 billion.
Ford Motor Credit Co. reported a quarterly pretax profit of $414 million, down 18 percent, as revenues were unchanged at $2 billion. Full-year pretax profits declined 29 percent to $1.7 billion. The company attributed the drop in 2012 earnings to fewer lease terminations, resulting in fewer vehicles sold at a gain, and lower financing margins.
For 2013, Ford Credit projects full year pretax profits to be about the same as 2012
Forecasting 2013
In 2013, Ford expects U.S. industry vehicle sales to be in the range of 15-16 million units as the housing market continues to recover, bolstering sales of pickup trucks. That figure includes some medium-duty commercial trucks.
Ford produced 1.5 million units globally in the fourth quarter, 125,000 units more than a year earlier. Compared to a year earlier, it built 60,000 more vehicles in North America and 62,000 fewer in Europe. North American output totaled 735,000 in the quarter, while Europe's came to 340,000. In Asia Pacific Africa, it built 302,000, up 111,000 from a year earlier.
In 2012, Ford produced 5.7 million units, up 54,000 from 2011. Production rose 162,000 units in Asia Pacific Africa to 1 million, and 124,000 in North America to 2.8 million. But output fell 188,000 in Europe to 1.4 million and 44,000 in South America to 417,000.
Ford expects first-quarter 2013 global production of almost 1.6 million, up 160,000 from a year ago. It expects North American production will rise 93,000 units from the first quarter of 2012 to 770,000, while European production will slip 13,000 units to 405,000.
Ford's automotive debt was $14.3 billion on Dec. 31, up from $13.1 billion a year ago. But its net cash on hand grew to $10.0 billion at the end of the year from $9.8 billion a year earlier.
Ford made $3.4 billion in cash contributions to its worldwide funded pension plans, $2.3 billion more than in 2011.
Bloomberg contributed to this report.
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You can reach Bradford Wernle at bwernle@crain.com.
