Ford's Second-Quarter Earnings Beat Estimates

Ford's global headquarters in Dearborn, Mich. Ford reported a strong second-quarter profit on Wednesday. Photo credit: Ford Motor.

Ford reported net income of $1.2 billion for the second quarter before the bell on Wednesday.

That reflects a pre-tax profit of $2.6 billion, or $0.45 a share, an increase of $0.15 a share over the year-ago quarter. It was also well ahead of the consensus Wall Street estimate of $0.37 a share.

It's a very good result that was driven by strong earnings in North America and improvements in all three of Ford's overseas units -- improvements that led Ford management to raise its full-year guidance.

A look at the key numbers
The best way to understand the state of Ford's global business is to look at the results for each of its regional business units in turn. Here's how things broke down in the second quarter of 2013.

One note: The numbers given below don't take taxes into account. That's because tax situations can vary from quarter to quarter, so we use pre-tax numbers to get the best basis for comparison with past (and future) quarterly reports.

  • North America continues to be the "engine" of Ford's global business, as CEO Alan Mulally often says. Ford earned $2.3 billion in North America in the second quarter, a $319 million increase from a year ago. The story here is simple and good: strong sales, market share gains, discipline around spending on incentives, and an industrywide boom in sales of full-size pickup trucks, a segment that Ford leads (and that generates major profits for the company). Ford's operating margin in North America was 10.4% in the second quarter, down a bit from last quarter (as expected) but still exceptionally strong.

  • South America posted a $146 million profit, a $141 million improvement over the year-ago result. Unfavorable exchange rates and fierce competition continue to challenge Ford in this region, but the company showed improvements in sales, a gain in market share, and some improvement in pricing, meaning that it was able to reduce its discounts. Its operating margin in the region was 5%, a big improvement over recent results.

  • Europe posted a loss of $348 million, a big hit but nonetheless one that represents some improvement: It's $56 million better than a year ago and $114 million better than the loss posted last quarter. Industrywide auto sales in Europe are at 20-year lows, but Ford is making steady improvements as it continues work on a comprehensive turnaround plan announced last fall. Among other changes, Ford is in the process of closing three factories in Europe, and took a charge of $419 million in the quarter for charges related to those closing.

  • Asia-Pacific/Africa reported its best-ever quarterly result, a $177 million profit that represents a $243 million improvement over the year-ago result. This region has been running near breakeven recently because of the massive investments that Ford is making to expand in China and India, where it has several new factories under construction, and profits are expected to grow significantly in a couple of years after those investments are completed. The profit here is a result of Ford's huge recent sales growth, especially in China, where sales were up more than 40% in the first half of the year.

  • Ford Credit is the company's in-house financing arm, and it made $454 million in the second quarter, up a bit from $438 million a year ago. Profits here ebb and flow with the rhythm of the company's leasing business. This was a good result, as expected.

Ford says that its outlook is improving
Ford management raised its full-year guidance for Europe. The company now expects full-year 2013 losses in Europe to be about $1.8 billion, or roughly in line with last year's losses. It had previously said that it expected losses to total about $2 billion for the full year.

Ford's "automotive liquidity" -- that's its total cash on hand (not counting cash related to its financing arm) plus its available credit lines -- totaled $37.1 billion at the end of the quarter, up $2.6 billion from a year ago. That includes a $2 billion increase in Ford's cash hoard, which is up to $25.7 billion. Debt stands at a manageable $15.8 billion.

Long story short, this was another good quarter for Ford. Continued strength in North America plus genuine signs of improvement in all three of its overseas units add up to a good ongoing story, one that should give the stock a boost in the days to come.

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