U.S. auto giant Ford (F: Charts, News) dragged down its industry peers yesterday after the company reported weak earnings exacerbated by seemingly endless European woes. For the second quarter, Ford earned 26 cents per share, or $1 billion, on revenue of $33.3 billion. This was a 57% slide in profit and 6% drop in revenue from the prior year quarter. Excluding one-time charges, which included the sale of two parts factories, Ford earned 30 cents per share, topping the average analyst forecast of 28 cents per share.
Despite beating expectations, investors remained wary of the company’s troubled European unit, which reported a loss of $404 million, down from a profit of $176 million a year earlier. To make matters worse, Ford now forecasts a total loss of over $1 billion in Europe for fiscal 2012, double its original estimate. Europe accounts for 25% of Ford’s company-wide sales. Ford announced that it was “reviewing options” for the region, but did not offer any detailed cost-cutting plans. Auto sales in the European region slid 15% this quarter to 20-year lows due to the ongoing sovereign debt crisis. “This is a very serious situation,” stated Ford CFO Bob Shanks. “It’s going to take quite a long time for Europe to work through these issues.”
While the macro problems of the European economy are well-known, Ford appears to be facing other micro challenges in the region. German automakers, including Daimler, notably stole market share away from Ford, after Ford refused to cut its prices to attract more buyers at the expense of slimmer margins. Daimler posted an 11% drop in earnings to $1.83 billion for its second quarter, but reaffirmed its full-year earnings target.
In North America, Ford posted a profit of $2 billion, a 5.3% increase from the previous year, attributed to higher prices and well received vehicles such as the Ford Escape. Shanks also noted that the U.S. financial crisis provided the company with a “road map” of handling the similar crisis in Europe. “We know what to do in a tough situation,” he said. In 2006, Ford took out a $26 billion loan to close factories, lay off thousands of employees and redesign existing vehicles, such as the Ford Fusion and Ford Explorer. As a result, the company weathered the crises of 2008 and 2009 intact, while its primary rival General Motors (GM: Charts, News) went bankrupt and required a bailout.
Unfortunately, North America was the lone bright spot in its quarterly report. Ford lost $66 million in Asia, down from a $1 million profit a year earlier. Its Asian profits were also eroded by higher expenses from rapid expansion in the area. In South America, the company posted a profit of $5 million, a 98% plunge from the previous year. Higher tariffs, older products and a deflating currency all negatively impacted the region.
Meanwhile, the looming threat of Japanese automakers, returning from a lost year due to the devastating tsunami of March 2011, has made a recovery by Ford and GM seem less likely this year. This week, Toyota Motors (TM: Charts, News) reclaimed the top sales spot for the first half of 2012 from General Motors, dousing hopes that U.S. autos would capitalize on the strong momentum gained from 2011.
Looking ahead, Ford expects a “strong” full-year profit, but is expected to significantly lower its original expectation of matching its 2011 profit of $8.7 billion. Shares trade at 5.7 times forward earnings with a 5-year PEG ratio of 0.66. Ford pays a quarterly dividend of 5 cents per share, a 2.2% yield at current prices. In contrast, General Motors trades at 4.5 times forward earnings with a 5-year PEG ratio of 0.42, which makes GM’s shares look comparably cheaper than Ford’s.
Other News About F
Ford’s European Rut Deepens, But Earnings Beat
Ford’s strong North American sales get dragged down by international losses.
Ford Earns Second Quarter 2012 Pre-Tax Operating Profit Of $1.8 Billion, Net Income Of $1 Billion
A closer look at Ford’s earnings.
Other Stocks in the News
Apple Earnings Miss Takes Bite Out of Asia Supplier Shares
Apple misses analyst expectations, dragging down its supply chain.
Toyota Retakes Global Sales Lead
Toyota returns to steal the lead from General Motors.
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