Ford said Tuesday that third-quarter profit exceeded estimates, slipping 1.1 percent, as its North America unit delivered record earnings that made up for higher taxes and losses in Europe.
Ford reported its 14th consecutive profitable quarter, with net income of $1.63 billion, or 41 cents a share, compared with $1.65 billion, or 41 cents, a year earlier. Excluding one-time items, the profit was 40 cents a share, exceeding the 30-cent average estimate of 19 analysts surveyed by Bloomberg News.
Chief Executive Officer Alan Mulally, who revealed plans last week to close three European factories, is attempting to engineer a turnaround adapting the strategy that worked in the U.S. Ford had a pretax operating loss of $468 million in Europe in the third quarter, from a loss of $306 million a year earlier. The automaker lost $553 million in Europe in the year’s first half and has said it expects deficits in the region of more than $1.5 billion this year and again in 2013.
“Europe has been the biggest drag on the shares,” Peter Nesvold, an analyst with Jefferies & Co. who has a buy rating on Ford, wrote in a note to clients. “You’ve now seen what the company did in transforming North America. One has to believe the shares have tremendous upside if the company comes even close to replicating that success in Europe.”
In North America, where Ford generates most of its sales and profits, the automaker reported record pretax operating income of $2.3 billion, lifted by higher prices and a $400 million improvement on commodity hedges. Ford said its North American operating margin was 12 percent for the quarter. The region earned $1.6 billion in the same period a year earlier.
“This the third quarter in a row where we earned over $2 billion and the third quarter in a row with an operating margin over 10 percent,” Chief Financial Officer Bob Shanks said of North American profits. “The story isn’t just the results in the quarter, but the consistency.”
Structural costs, including engineering, manufacturing and marketing expenses, will rise in the fourth quarter, he said. “Don’t expect the results to be as strong as this quarter,” he said.
Ford’s decline in net income came from a change in its tax rate to 30 percent this year, from 10 percent last year, which lowered net income by $400 million, Shanks said in an interview. Ford’s tax rate changed after it removed an allowance for past losses from its balance sheet in last year’s fourth quarter.
In the last two years, Ford has earned a pretax profit of $11.6 billion in North America after losing $6.3 billion in the region in 2008 and 2009.
Ford plans to cut 6,200 employees in Europe, or 13 percent of its workforce there. It said next year it will close a Transit van plant in Southampton, England, and a stamping plant in Dagenham, on the outskirts of London. In 2014, Ford plans to close a factory in Genk, Belgium, that builds the Mondeo mid-sized car, the S-Max wagon and the Galaxy minivan.
U.S. consumers paid an average of $33,376 for Ford models in the third quarter, up 3 percent from a year ago, according to the website Edmunds.com. Ford’s average prices are up 27 percent from 2002 and 13 percent from 2007.
