Record quarterly profits in North America fueled earnings of $1.6 billion, Ford reported today.
The $2.4 billion in pretax profits in North America more than offset losses in Europe of $462 million and a $218 million loss in South America while Asia-Pacific posted a small pretax profit of $6 million.
Total pretax profit of $2.1 billion or 41 cents per share was down $147 million from a year ago due to the troubled regions, but the overall result beat Wall Street estimates by four cents.
This is the 15th consecutive quarter of profitability for the automaker.
“Our strong first-quarter results provide further proof that our One Ford plan continues to deliver,” said CEO Alan Mulally.
A year ago Ford saw its first-quarter profit fall 46% to $1.4 billion. But in North America, Ford made $2.1 billion before taxes, which had been the largest profit at home since the automaker started reporting results by region in 2000 – until now.
Operating margin in North America was 11%, up from 10.3% a year ago and below some analyst expectations of 12% or more.
In North America, revenue was up 20% and wholesale deliveries were up 17% in the quarter.
The lower operating margin reflects the costs of running the extra shifts of production added last year and increased engineering costs for future models.
Ford’s U.S. sales increased 11% in the first three months and many were profitable full-size pickups.
But small and mid-size vehicles are proving strong sellers and while Ford wanted a better car-truck mix, the realization of this goal comes at a cost of $300 million because profit margins are smaller on these vehicles.
Some analysts think incentives will creep up, especially on pickups, eroding some of that pricing power going forward.
Edmunds.com data shows the average amount people paid for a Ford vehicle was up 3.7% to an average of $33,192 compared with $31,995 a year ago which indicates Ford was offering fewer incentives in the first quarter and there is less dickering over price at the dealership, said analyst Michelle Krebs.
Incentives over the quarter were down 2.2% to $2,700 per vehicle, according to Edmunds.
But Kelley Blue Book data has transaction prices down slightly, on average.
“As a global company Ford is buffeted by winds affecting each of the world’s major markets,” said Jack Nerad, market analyst at Kelley Blue Book.
“Most recently the North American market has been on the mend, and Ford has been buoyed by this trend. Europe, South America and even China have been another story, however. As a big player in Europe, Ford has been struck particularly hard by the recessionary trends in that market. South America continues to be a troubling muddle, and China offers substantial potential but is fraught with both domestic and import competition.”
Ford has already warned investors that it expects to lose at least $2 billion in Europe this year after a $1.8 billion loss in 2012 and that outlook has not changed. A restructuring plan is expected to return Ford of Europe to profitability mid-decade.
Ford has launched seven of the 15 new vehicles promised for the region, reduced inventory while increasing retail sales, and currently has an order bank 30% higher than last fall when the restructuring efforts were announced.
The other trouble spot is South America. Last month Joe Hinrichs, Ford president of The Americas, said currency devaluation in Venezuela was a major contributor to the expected $300 million loss in a region where many countries are financially shaky and Ford is investing in a better mix of vehicles for the market. The early arrival of a ship of vehicles for the region resulted in additional last-minute revenue, bringing the loss down to $218 million. And while Ford expects continued issues with currency exchange in Venezuela and Argentina, the automaker does not expect another formal currency devaluation.
Ford also continues to spend to become a bigger player in Asia-Pacific, especially China. Ford had record share of 3% in the region for the first quarter and China posted its best-ever 3.5% share, up a full percentage point.
Overall, Ford sold almost 1.5 million vehicles worldwide, earning $35.8 billion in revenue – both up about 10% from the same period a year ago. The bulk of the revenue – $33.9 billion – was from the automotive sector, but Ford Credit had a good quarter, earning $507 million.
As part of Ford’s plan to de-risk its pension obligations, the automaker contributed $1.8 billion in cash contributions to its global pension funds in the quarter. That included $1.2 billion in discretionary contributions.
Alisa Priddle, Detroit Free Press.
