* Ford doubles 2012 forecast for Europe losses to more than
* Ford lost $1,125 for every vehicle sold in Europe
* Net income down 57 pct
* Operating profit $0.30 per share vs $0.28 Wall St view
By Deepa Seetharaman and Bernie Woodall
July 25 Ford Motor Co forecast a drop in
operating profit for 2012 as the automaker expects to lose more
than $1 billion in Europe, where the deepening economic crisis
is hitting sales.
Wednesday's new full-year outlook for Europe fell in line
with analysts' estimates, but was nearly double the No. 2 U.S.
automaker's earlier forecast of a loss between $500 million and
Chief Executive Officer Alan Mulally said the company was
reviewing all aspects of its European business, but he would not
discuss the chance of a plant closure. He and other executives
said costs must come down in Europe, where Ford lost $1,125 on
every vehicle it shipped to dealers in the second quarter.
"We are assuming that this is a structural issue, not a
cyclical issue," Mulally said on a call to discuss
second-quarter earnings. "It's not going to come back fast."
The company relied on its North American operations and
finance arm, Ford Motor Credit, to turn a profit in the second
quarter, but the company trimmed its forecast for industrywide
U.S. vehicle sales this year.
Ford said the steeper losses in Europe as well as a
"substantially lower" anticipated profit in South America would
mean operating earnings would fall in 2012 rather than remain
unchanged from 2011, as the company had previously forecast.
Some analysts warned that auto sales could deteriorate
further in Europe, which accounted for a little more than a
quarter of Ford's revenue last year. During the first six months
of 2012, industry sales there fell to their lowest level in
nearly 20 years.
"I'm certain Ford is underestimating the situation there,
but I think everyone is," Guggenheim Securities analyst Matthew
Stover said. "We haven't seen the worst yet."
EUROPE WOES LONG-LASTING
Morgan Stanley analyst Adam Jonas estimates that Ford's
capacity utilization rate in Europe is 63 percent, lower than
nearly all rivals except for Fiat SpA. "Ford must
reduce capacity urgently," he said in a June 29 note.
Ford's larger crosstown rival General Motors Co is
also struggling to stem losses in Europe. Earlier this year, GM
and PSA Peugeot Citroen formed a product-development
and procurement alliance aimed at producing substantial cost
efficiencies for both companies.
The crisis in Europe has forced Peugeot to cut deeper. The
company is discussing with unions plans for 8,000 job cuts that
could save the company $1.8 billion.
Ford operates five plants in Western Europe. The company
also has joint ventures in Turkey and Russia, but does not plan
to enter more partnerships in the region.
"Do we need more partnerships? Certainly joint venture,
equity-related partnerships, I would say no," Chief Financial
Officer Bob Shanks said in an interview. "I think we just need
to mind our knitting and focus on our opportunities."
Executives said they were charting a recovery path for
Europe that draws from the playbook of Ford's U.S. turnaround,
which started when Mulally was hired six years ago.
In the second quarter of 2009, during the depth of the U.S.
auto crisis, Ford lost $1,858 on each car it sent to dealers in
North America. Two years later, it is making nearly $2,800.
In the near term, Ford is laying off temporary workers in
Europe, shortening work days and slowing the speed of assembly
lines. It has also curtailed its spending on sponsorships and
advertising, particularly in countries where sales are lowest.
"As we look over the next five years and lay out all of our
plans for our business, we just think the situation in Europe is
going to be challenging," Shanks told reporters at Ford's
headquarters in Dearborn, Michigan.
The company has the flexibility to shift production of its
global vehicles, such as the Fusion mid-size sedan and Escape
SUV, to plants outside Europe if necessary, Mulally said.
"But also, we have to take into account what the
transportation costs are and the freight and the other things
that go with doing that," he added.
CARRYING THE QUARTER
Concerns over Europe have hit shares of Ford and GM on
Wednesday, Ford stock fell more than 1 percent to as low as
$8.92 on the New York Stock Exchange.
This was the lowest price since December 2009, a year when
Ford reported its first profit after losing $30 billion over a
three-year stretch ending in 2008.
The loss in Europe accounted for almost all of Ford's red
ink outside North America during the second quarter. Ford lost
$404 million in Europe and $66 million in Asia, while making a
$5 million profit in South America.
Higher vehicle prices in its home market boosted Ford's
operating profit in North America to just above $2 billion.
The company now expects industrywide U.S. auto sales to be
at the lower end of its forecast of 14.5 million to 15 million
vehicles, including medium- and heavy-trucks, due to
disappointing demand in recent months, Mulally said.
Excluding one-time items, Ford earned 30 cents per share in
the second quarter. On average, analysts expected 28 cents,
according to Thomson Reuters I/B/E/S.
The automaker reported net income of $1 billion, or 26 cents
per share, down from $2.4 billion, or 59 cents per share, a year
Ford attributed the decline in part to an accounting change
this year that raised its effective tax rate to 37.3 percent
from 8.4 percent in 2011.
Quarterly revenue fell 6.2 percent to $33.3 billion.
North America accounted for 63 percent of Ford's revenue in
its automotive division during the second quarter. Europe was 23
percent, while Asia and South America made up 7 percent each.