DETROIT Ford Motor Co forecast a $2 billion loss in Europe this year, pointing to a punishing recession that could drive down industry sales in the region to a 20-year low.
By contrast, Ford expects to make more money this year in North America, its most profitable region. But the No. 2 U.S. automaker also predicted 10-percent operating margins in North America, smaller than the 10.4 percent reported last year.
The weak outlook overshadowed Ford's better-than-expected fourth-quarter results, and sent the company's shares tumbling as much as 6.5 percent. At the stock's low point, the declines wiped away more than $3 billion in market value.
The forecast "undercuts the popular investor thesis that Ford offers significant earnings expansion from a booming U.S. auto market while having 'Europe-proofed' its guidance," Barclays Capital analyst Brian Johnson said in a research note.
It was the fourth time in 12 months Ford ratcheted down expectations in Europe, illustrating how difficult it has been for automakers to predict and manage the rapid deterioration of sales in the region.
Ford expects the industry to sell between 13 million and 13.5 million vehicles in Europe this year. At the bottom of that range, sales in Europe would sink to their lowest level since 1993, according to automotive consultancy IHS Automotive.
"We're likely to see, in the euro zone, a recession for the full year," Chief Financial Officer Bob Shanks told reporters.
"Clearly, we still have some difficult times in front of us," Shanks said of Europe. "But we do think it will probably bottom this year."
While Ford draws the lion's share of its revenue and profits from North America, Europe is Ford's second-biggest source of revenue. It now expects to lose more in Europe this year than the nearly $1.8 billion loss it recorded in 2012.
Ford shares were down 5.6 percent to $13 on the New York Stock Exchange by early afternoon, the stock's biggest one-day decline since August 2011.
STRENGTH IN NORTH AMERICA
Some investors had been hoping that Ford would forecast North American margins of at least 11 percent for the year, Johnson said. He had predicted Ford would target a 10.6 percent margin, while Morgan Stanley estimated a 10.2 percent.
Still, Ford expects to earn more money in North America this year and gain market share in the United States.
Overall, Ford looks for total operating profit this year to match 2012 levels. In South America and Asia Pacific and Africa regions, Ford expects to break even.
So far, weakness in Europe has been balanced by Ford's strength in North America, which is reaping the benefits of Chief Executive Alan Mulally's "One Ford" turnaround strategy.
Jefferies analyst Peter Nesvold estimated Ford cut capacity in North America by a little more than one-fifth from 2006 to 2009. Higher vehicle prices commanded an additional $10 billion in revenues from 2006 to 2010, Nesvold said.
As a result, Ford avoided government bailouts needed by rivals General Motors Co and Chrysler Group LLC in 2009. The North American restructuring serves as the blueprint for Europe's overhaul.
"One has to believe the shares have tremendous upside if Ford comes even close to replicating its North American restructuring success in Europe," Nesvold wrote on Tuesday in a research note.
'TAKING ITS MEDICINE'
Ford reported a per-share pretax operating profit of 31 cents in the fourth quarter, better than the average analyst estimate of 25 cents per share, according to Thomson Reuters I/B/E/S. Fourth-quarter revenue totaled $36.5 billion.
Ford spent $1.2 billion on lump-sum pension buyouts last year, but did not say how many salaried retirees took the offer.
Ford earned nearly $1.9 billion in North America in the quarter, almost $1 billion better than the fourth quarter of 2011. It lost $732 million in Europe, much worse than the $190 million loss it reported a year earlier.
But Europe remains unpredictable, Ford and other automakers have said, adding it would take more action if necessary. Ford plans to close three factories and reduce capacity in Europe by 18 percent to save as much as $500 million a year.
In early 2012, Ford estimated it would lose $600 million in Europe and increased that forecast to "at least" $1.5 billion by October. Ford also said late last year that its 2013 losses in Europe would match 2012 levels.
Of the $2 billion in losses Ford now expects in Europe, about $500 million are restructuring costs, CFO Shanks said.
"Ford continues to take its medicine in Europe, while Asia Pacific and South America feel upfront costs as they position for longer-term growth," Morgan Stanley analyst Adam Jonas said.
(Reporting by Deepa Seetharaman and Paul Lienert; Additional reporting by Laurence Frost; Editing by Jeffrey Benkoe and Leslie Gevirtz)