Ford Motor Co , the No. 2 U.S. automaker, reported a lower-than-expected fourth-quarter profit on Friday as operations outside North America fell short of expectations and commodity costs shot up across all regions.

Losses in Europe nearly quadrupled during the quarter amid an ongoing debt crisis that tempered auto sales in the region. Flooding in Thailand led to a loss in Asia and increased competition blunted profits in South America.

Ford shares fell as much as 7.7 percent on the New York Stock Exchange before paring losses after analysts said Ford's 2012 outlook was in line with expectations. The stock was down 3

percent at $12.36 (7.86 pounds) at midday.

Higher commodity costs pinched automotive profit margins, which fell to 5.4 percent last year from 6.1 percent in 2010.

Commodity costs for the year came to $2.3 billion (1.4 billion pounds), up slightly from the company's $2.2 billion forecast. Ford expects those costs to rise modestly in 2012. Ford also said it missed estimates because of unfavourable exchange rates.

They're still losing money overseas, while the U.S. continues to go well for them, said Gary Bradshaw, portfolio manager of Hodges Capital Management, which owns Ford shares. Between commodity costs and European woes, it's been tough for Ford.

Excluding one-time items, Ford's operating profit fell to $1.1 billion, or 20 cents per share, from nearly $1.3 billion, or 30 cents per share, a year earlier. Analysts polled by Thomson Reuters I/B/E/S had expected 25 cents.

Analysts noted Ford's exposure in the U.S. auto market would help the automaker ride out the challenges in Europe in 2012. Europe accounted for nearly a quarter of Ford's 2011 revenue and Ford predicted the market would remain uncertain.

We have been restructuring the European business for over a decade, Chief Financial Officer Lewis Booth told analysts on a conference call. But there's still ... tremendous amount of open capacity, which results in some incentive activity levels that isn't great for the business.

The automaker also forecast a lower profit in South America and a modest profit in its Asia and Africa region.


But Ford projected a higher operating margin in its auto operations this year on the strength of stronger profits in North America, which generates more than half the company's annual revenue.

Ford has been able to command higher prices for its cars and trucks in North America as its lineup improves in fuel efficiency and technology. This year, Ford will launch several vehicles globally, including the 2013 Fusion midsize sedan.

Booth said Ford expects its vehicle prices will continue to rise this year. But the pace of the price increases will slow because Ford has already improved the quality of its vehicles, which has allowed it over the last few years to increase prices and avoid layering on incentives for buyers.

We expect to see continued improvements in net pricing, but slowing down, he said. We are closing the gap with the best of our competition.

Ford is the first of the three Detroit automakers to report results for the fourth quarter. General Motors Co and Chrysler Group LLC report results next month.

Ford is less exposed to Europe than GM, which is struggling to restructure its flagging Opel brand. Ford's losses in Europe widened to $190 million in the fourth quarter from $51 million a year earlier.

Ford won't be immune to a downturn in Europe, but I think the product lineup is a little bit fresher and a little bit better, and it's a smaller piece of the overall pie, said Jefferies analyst Peter Nesvold.

Europe is less of an anchor for Ford's shares than it is potentially for GM's shares, said Nesvold, who has a buy rating on Ford.

In South America, Ford's profit fell to $108 million from $281 million. Ford posted a quarterly loss of $83 million in Asia, compared with a year-earlier profit of $23 million. The company warned of the loss in Asia earlier this month.


During the fourth quarter, Ford contributed about $3.5 billion globally to its pension plans.

Ford reported net income of $13.6 billion, or $3.40 per share, buoyed by a one-time tax-related gain of $12.4 billion. Net income was $190 million, or 5 cents per share, a year ago.

The higher net income was the result of an accounting change that Ford said reflects confidence in its long-term profit outlook under Chief Executive Alan Mulally, who is credited with steering Ford from its near-collapse.

In late 2006, Ford created the valuation allowance because it forecast losses in its North American, Jaguar and Land Rover operations that made it impossible to take advantage of some deferred tax assets.

Nearly six years later, Ford has reached a new juncture in its revival that centers on preserving the value of top-selling models and finding a successor for Mulally, now 66.

(Reporting by Deepa Seetharaman, Ben Klayman and Bernie Woodall in Detroit; Editing by Derek Caney, Lisa Von Ahn and Matthew Lewis)