Ford Earnings Preview 2Q 2012: Lower Profits Expected From European Troubles

Dearborn, Mich.-based Ford's earnings per share for the second quarter are expected to fall 43 percent to $0.28 from $0.49 last year, according to Thomson-Reuters analysts' consensus. Similarly, revenue is expected to have shrunk 4 percent to around $32.2 billion, compared to $33.5 billion during the same period last year.

Ford is expected to report pretax losses of $400 million in Europe, down from profits of $180 million in the region last year, and losses of $90 million in South America, down from profits of $270 million in the year before, according to UBS research. Ford is predicted to report $90 million in Asia-Pacific losses, down from static numbers last year. Likewise, North American profits have fallen, albeit much more moderately. Ford is expected to report North American profits of $1.78 billion, down 6.9 percent from $1.91 billion the year before.

Overall international losses for Ford are predicted to be three times what they were during the first quarter, according to a July 18 report by Barclays.

Ford's losses in South America are largely the result of weakening currencies, new trade barriers (in Argentina and Brazil), and FX controls (which may have negatively impacted production), according to a June 29 report by Deutsche Bank research analyst Rod Lache.

Sales for the entire automotive industry have plunged 6.5 percent for the year to date in Europe, according to a July 10 report by Goldman Sachs. The European market has been glutted with a surplus of vehicles, and consumer confidence there has been low, owing to the ongoing euro zone debt crisis. Automakers have been seeking to bolster European sales in an effort to cut stock by offering incentives, further cutting into profit margins.

In Europe, the deterioration [of profits] appears to be attributable to pricing, Lache said.

Ford's drop in Asian profitability may be largely attributable to the cost of rapid expansion. The company plans to launch eight new vehicles in the region by 2015 and recently completed a $72 million, 14-month upgrade to an engine plant in Chennai, India.

Ford India's net worth has fallen by more than 50 percent in the past year, according to a May 30 report by Trefis. However, Trefis analysts do not believe it will impact Ford's position among global competitors. Moreover, Ford is spending $1 billion for a new factory in Gujarat.

Robust automotive sales in the U.S. in the second quarter have helped to buoy Ford's overall profitability as the seasonally adjusted annual rate of sales crept back above 14 million units for the overall U.S. automotive market in June. Ford particularly benefited from high demand for its fuel-efficient EcoBoost models earlier in the year and improving demand for F-series pickup trucks in the U.S. in June. Ford Focus models benefited from strong consumer demand, following much-lauded redesigns.

Despite weaknesses in Europe, Asia and South America, the outlook is positive for Ford in the second quarter. The company was upgraded to investment grade by Moody's Investors Service in late May and regained ownership of its iconic blue oval logo. Ford had pledged the blue oval as part of a $23.5 billion 2006 loan package. The company finished paying back the loan in September 2011 and paid its first dividend in six years in the first quarter of 2012.

We are confident that, by staying focused on our plan and working together, we will maintain strong investment grade ratings through all economic cycles, Ford President and CEO Alan Mulally said in May.

Ford Motor Co. (NYSE: F) shares fell 0.43 percent to $9.17 Monday afternoon.