DEARBORN, Mich. – Europe may have lost its appetite for new cars, but buyers in America and China propelled Ford to a better-than-expected profit in the third quarter.
Ford Motor Co. earned $1.63 billion, down only slightly from a year earlier, despite lower worldwide sales and bigger European losses. It was the company’s best performance ever in the third quarter.
Ford said Tuesday its per-share net income was unchanged at 41 cents. Excluding one-time items, like severance payouts, Ford earned 40 cents per share, beating Wall Street’s forecast of 30 cents, according to FactSet.
Ford reported a $2.3 billion pretax profit in North America, its best performance since the company began reporting separate North American results 12 years ago. The region has been profitable for three years now, after a grueling restructuring that saw thousands of job cuts, plant closures and the accelerated development of new products like the Focus sedan. That restructuring is now Ford’s blueprint for Europe, which is expected to drag down results this year and next.
“We know what it takes to have a healthy business,” Chief Financial Officer Bob Shanks said.
Ford’s revenue fell 3 per cent to $32.1 billion as vehicle sales dropped worldwide, but the company still exceeded Wall Street’s revenue forecast. That was due to North America, where revenue jumped 8 per cent to $19.5 billion, helped by higher pricing and increased sales of more profitable trucks and SUVs like the Ford Explorer.
It was the third quarter in a row that the company has made more than $2 billion in North America and has reported an operating margin of 10 per cent or more. Ford’s North American operating margin was 12 per cent in the third quarter.
“To me the story isn’t just the results but the consistency of the results,” Shanks said.
It’s also impressive because the third quarter is typically a slower period. Summer production shutdowns cut into profits, while fall launches of new cars can hurt sales of older cars still in showrooms.
Shanks said the 12-per cent rate likely won’t be repeated in the fourth quarter, when automakers typically spend more on holiday ads. Ford also saw a gain from commodity hedging that might not be repeated.
Ford’s U.S. market share actually fell from a year earlier. Japanese automakers regained their footing after the 2011 earthquake and Ford stopped selling the Ranger pickup and Crown Victoria sedan which had strong sales last fall. Shanks said Ford is optimistic that its share will grow in the fourth quarter, as new versions of the Fusion sedan and Escape small SUV arrive at dealerships. But he said Ford won’t go back to its old habit of gaining share by heavily discounting its vehicles or dumping them into rental-car fleets.
North American sales were up 3 per cent. But more importantly, Ford made more money on every vehicle it sold as customers paid more for features like inflatable seatbelts. The company also spent less on incentives. Car buying site TrueCar.com said U.S. buyers paid an average of $32,115 for a new Ford in the third quarter, up more than $300 from the same time last year.
The company lost $468 million in Europe, where sales have fallen sharply because of the troubled economy. Ford’s European sales were down nearly 15 per cent in September compared with a year earlier, worse than the 10.8 per cent drop for all brands, according to Acea, the European carmakers’ association. Shanks said Ford is losing market share because it’s not matching competitors’ aggressive incentives in Europe.
The company hopes to stem its losses by introducing 15 new vehicles to Europe over the next five years, including the iconic Mustang sports car. It also announced last week that it plans to close three European factories by 2014, affecting 6,200 employees. In the meantime, the company expects to lose more than $1.5 billion both this year and next year in Europe. It doesn’t expect to return to profitability in the region until the middle of the decade.
Jefferies auto analyst Peter Nesvold said Ford’s impressive results in North America bode well for Europe.
“One has to believe the shares have tremendous upside if the company comes even close to replicating that success in Europe,” said Nesvold, who has a “Buy” rating on Ford shares.
The shares closed at $10.36 Friday. Trading was suspended Monday and Tuesday because of a massive storm on the East Coast.
Ford earned $45 million in its Asia Pacific region, reversing a loss from a year earlier. It’s the first profit there since the second quarter of 2011.
Shanks said a big investment in new plants and products for Asia is paying off. Ford reached its highest-ever market share in China in the third quarter, at 3.6 per cent. That was up from 2.8 per cent a year earlier.
Sales of the Focus small car are now higher in Ford’s Asia Pacific region than in the U.S. or Europe. Ford sold 86,000 Focus sedans in Asia Pacific in the third quarter, up 79 per cent from last year. By comparison, North American Focus sales were up 30 per cent to 65,000 and European sales were down 18 per cent to 74,000.
Ford made $9 million in South America in the third quarter, down $267 million from last year, as it phased out some older products and was hit by unfavourable exchange rates.