UPDATE 3-Ford flexes muscle overseas on strong demand

Wed Jul 24, 2013 1:16pm EDT

By Deepa Seetharaman and Ben Klayman

DETROIT, July 24 (Reuters) - Ford Motor Co boosted its full-year outlook and posted a second-quarter profit that trounced expectations on stronger demand for its cars and trucks in China and South America as well as a smaller-than-anticipated loss in Europe.

The No. 2 U.S. automaker also was more optimistic about the global picture, boosting its forecast for full-year operating profit and industry sales in several regions including China and Europe.

"We're at the beginning of the phase where over the next several years you'll start to see the operations outside North America take on more and more significance," Chief Financial Officer Bob Shanks told reporters. "You're starting to see what's possible."

Ford shares were up 3.6 percent to $17.54, the largest one-day percentage move so far this year.

The results reflected efforts to cut costs and simplify operations under Chief Executive Alan Mulally, who was hired in 2006 to steer the company through its financial crisis.

Improving consumer sentiment suggested Europe, where an economic downturn sent first-half industry sales to 20-year lows, "may have begun to stabilize," Mulally said on a conference call. Ford forecast a smaller loss in Europe this year - $1.8 billion versus its previous outlook of $2 billion.

"They still have the Europe economic headwinds in their face but maybe it's not blowing quite so hard," said Gary Bradshaw, portfolio manager with Hodges Capital Management in Dallas, which has boosted its holdings in Ford recently and now owns about 250,000 shares.

'SEARING' RESTRUCTURING

For the second quarter, Ford reported a pretax profit of 45 cents per share, 8 cents better than the analysts' average estimate, according to Thomson Reuters I/B/E/S. Revenue rose 15 percent to $38.1 billion.

The earnings report came days after Detroit filed for bankruptcy, marking a new step for a city that boomed nearly 100 years ago, when Ford founder Henry Ford promised his employees wages of $5 a day and helped create America's middle class.

CFO Shanks, who said the bankruptcy petition was not affecting the automaker, noted Ford went through its own "searing" restructuring that included closing numerous plants around the world and cutting its work force almost in half.

"It is something you never forget," he said. "But as you can see from the results that we have been announcing ... when you work your way through it, when you come out the other end you are much healthier."

The improvement is seen in Ford's core North American operation, which reported a pretax profit of $2.3 billion, boosted in part by higher truck sales.

Global vehicle prices, excluding the impact of incentives, rose $1 billion in the quarter. Prices increased in every region except Europe.

Overseas results especially pleased Wall Street as Ford posted a best-ever quarterly profit of $177 million in Asia. The $151 million profit in South America beat expectations, while the $348 million loss in Europe was lower than last year.

Morgan Stanley analyst Adam Jonas described Asia as the "star" of the quarter. The company now expects to be profitable in the region this year instead of its previous forecast of breakeven.

Taken together, operations in the three regions outside North America broke even, Shanks said. In the first quarter, they combined for a loss of $600 million.

TURNING POINT IN EUROPE

Ford is in the midst of overhauling its European business, borrowing heavily from the playbook that led to its North American renaissance.

This week, it closed two U.K. factories and plans to close its plant in Genk, Belgium, by the end of next year. Executives said the restructuring plan in Europe is on track.

Shanks said Ford has reduced its reliance on the short-term rental business in Europe and other low-profit sales strategies to focus on selling cars to consumers and more profitable fleet customers. He acknowledged the company increased incentives in the region during the quarter, but not as much as rivals.

"There is a bit of a turning point here in the sense that it's the first time we've had heard good news incrementally out of Ford in Europe," said Citi analyst Itay Michaeli, who has a "buy" rating on Ford shares.

Overall, Ford said its pretax operating profit this year would be "about equal (to) or higher" than last year's $8 billion, rather than its previous forecast of "about equal."

It said its automotive operating margins this year would be roughly the same as 2012, better than its previous outlook of "about equal" or "lower."

The company also said 2013 automotive cash flow would be "substantially higher" than last year's $3.4 billion. In the previous quarter Ford had simply said "higher." In the first half, Ford posted cash flow of $4 billion.

Ford is ramping up efforts in the United States. The company plans a faster model changeover for the top-selling F-150 full-size pickup to take advantage as demand for such vehicles grows at about three times the rate of the overall market.

With strength in its home U.S. market, Ford said it was looking to hire 3,000 salaried workers this year, 800 more than previously announced.

While many areas of Ford's headquarters were unused during the downturn, employees are now fighting over space in the building, Ford's human resources chief Felicia Fields told reporters Tuesday.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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