“Ford earns second quarter 2012 pre-tax operating profit of $1.8bn, net income of $1bn+” screams the press release headline. Okaaaaaay, this is the company that just announced more layoffs in Australia and of whom analysts are saying needs to shed at least one plant in Europe. What sayeth the release about that?
“Challenges at Ford Europe [and Ford South America] are being addressed through the company’s One Ford plan,” says a sub-head.
Go deeper with GlobalData
Discover B2B Marketing That Performs
Combine business intelligence and editorial excellence to reach engaged professionals across 36 leading media platforms.
Second quarter pre-tax operating profit plunged US$1bn year on year to $1.8bn, or 30 cents per share, notwithstanding the posting of a pre-tax operating profit for 12 consecutive quarters.
Second quarter net income was off a massive $1.4bn to $1bn, or 26 cents per share, “reflecting lower operating results except for Ford North America and higher tax expense”.
“The decrease in total automotive pre-tax operating profit and operating margin was more than explained by lower results [in Europe, South America and Asia Pacific Africa],” Ford said.
Revenue was down $2.2bn to $33.3bn.
Ford makes it clear drastic action is being contemplated for Europe.
Europe’s results “largely reflected unfavorable market factors”, the automaker said. “Volume was unfavourable due to lower industry [sales], share and associated production adjustments to maintain dealer stocks at appropriate levels. Net pricing was lower as the industry responded to excess capacity with higher incentives. Higher contribution costs also contributed to the profit decline.
“Given the deteriorating external environment in Europe, Ford now expects its full year loss in Europe to exceed $1bn. 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 recognises 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 CFO Bob Shanks. “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. 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.”
North America did well with pre-tax operating profit exceeded $2bn, and operating margin over 10% with Ford citing higher net pricing, improved contribution costs, and other factors, offset partially by higher structural costs for growth, and unfavorable volume and mix including an adverse change in US dealer stocks.
The company’s outlook for full year North America 2012 profits remains unchanged. It expects “significantly higher” pre-tax operating profit and margin compared with 2011, thanks to new products like the Escape (currently burdened by an embarrassing ‘don’t drive it’ fuel system recall).
South American pre-tax operating profit and operating margin, while slightly positive, declined substantially due to lower volume, higher costs, and unfavorable exchange.
Full year profit is still expected but “substantially lower than 2011, reflecting increased competitive pressures, weakening currencies, and changes in government policies affecting areas such as trade and access to foreign currency”.
Asia Pacific Africa market factors were strongly positive compared with a year ago, but more than offset by higher costs associated with new products and investments to support higher volumes and future growth.
Ford expects results to improve in the second half of 2012, due mainly to favorable volume and mix as it benefits from added capacity in China and Thailand and the redesigned Focus (Thai production started in June, lowering costs for AsPac units) and Ranger.
In the second quarter of 2012, Other Automotive reported a loss of $163m, compared with a loss of $76m a year ago. The loss mainly reflects net interest expense and an unfavorable fair market value adjustment, primarily from the company’s investment in Mazda.
