Europe Hurts Ford, North America Soars

Ford 2013 Red Tails Mustang and Plane

Dreary news from Dearborn. Ford Motor Co. had a tough second quarter. But for the first time in a long line of bad earnings reports from the Detroit Three, we can't blame this on North America. In fact, North America was one of the brightest spots in the second quarter report that Ford issued today.

Let's begin with the bad news. Europe gave Ford a lot of trouble in the past three months. That should not come as a surprise, but it still hurt.

Given the deteriorating external environment in Europe, Ford now expects its full year loss in Europe to exceed $1 billion. The magnitude of this loss will be affected by a number of factors, including the overall economic environment, competitive actions, and Ford’s response to these developments.

The company recognizes the seriousness of the situation in Europe, and views the challenges the industry faces as more structural than cyclical in nature. While Ford is affected significantly because of its strong presence in the region, the company understands what is needed to achieve profitability and to generate an appropriate return on investments.

“We have faced challenging situations in other parts of the business before, and successfully addressed them through our One Ford plan,” said Bob Shanks, Ford executive vice president and chief financial officer. “We will continue to use our plan as the guide to address challenges and opportunities in our valued European operations.

“We are reviewing all areas of our business to address the near-term challenges, while ensuring we build a strong foundation for our future,” said Shanks. “It is premature to discuss details of what our plans may be in response to the situation in Europe, but we will continue to communicate our plans at the appropriate times with all of our stakeholders.”

Now the good news:

Near-record profits in North America and continued strong performance from Ford Credit helped the Ford Motor Company [NYSE: F] deliver its 12th consecutive quarterly pre-tax operating profit as it reports second quarter 2012 results today.

The company reported a pre-tax operating profit of $1.8 billion, or 30 cents per share, and net income of $1 billion, or 26 cents per share. The company also continued to generate positive Automotive operating-related cash flow, and ended the period with a strong liquidity position of $33.9 billion, an increase of $1 billion during the quarter.

“The Ford team delivered another solid quarter driven by the strength of Ford North America and Ford Credit,” said Alan Mulally, Ford president and chief executive officer. “We remain absolutely committed to continuing to make progress on our One Ford plan, including dealing decisively with near-term challenges, investing for future growth, and developing outstanding products with segment-leading quality, fuel efficiency, safety, smart design and value.”

Second quarter 2012 net income was affected by lower operating results and the impact of higher tax expense compared to a year ago that resulted from the release of the tax valuation allowance in the fourth quarter of 2011.

Ford finished the second quarter with Automotive gross cash of $23.7 billion, an increase of $700 million during the quarter. Automotive debt of $14.2 billion at the end of the second quarter was up from $13.7 billion at the end of the first quarter, primarily reflecting additional drawdowns of low-cost loans for the development of advanced vehicle technologies. The company will make its last draw on these loans by August 2012, and repayment of the loans begins in September 2012.

Ford also made payments of $800 million to its worldwide funded pension plans, of which $500 million were discretionary payments to U.S. funded plans, in line with the company’s previously-disclosed long-term strategy to de-risk its funded pension plans. Dividends paid in the quarter totaled nearly $200 million.  Automotive gross cash exceeded debt by $9.5 billion at the end of the second quarter, a net cash increase of $200 million during the quarter.