Ford (NYSE: F ) reported its first-quarter results on Friday, and at first glance it was a mixed bag: While its net income of $1.4 billion, or $0.39 a share, exceeded analyst expectations, it was down significantly from the $2.55 billion the company reported a year ago.
But this is one of those cases where taking a longer view can be useful. There's a lot for Ford shareholders to like in the company's first-quarter results, even though profits aren't growing as many of us hoped. It's now clear that CEO Alan Mulally's "One Ford" strategy is driving great results at home -- and Ford is laying the groundwork for similarly strong results elsewhere in the coming months and years.
North America: The source of Ford's strength
Ford North America is the "engine" of Ford's profits, as Mulally often says, generating the bulk of the company's profits quarter after quarter. And it continued its strong run -- in fact, it's getting stronger as time goes on and more of Ford's fresh products gain traction in the marketplace. Ford North America made $2.1 billion before taxes, up $289 million from a year ago. That's Ford's highest profit in North America in at least a dozen years, a very impressive result -- especially considering that auto sales remain well below last decade's historical trend.
Want a great indicator of how well Ford's doing in its home market? Ford's operating margin in North America was up to 11.5% from 10.3% a year ago. That's Ford's highest margin here since the height of the SUV era -- when the company was selling far more high-profit trucks as a percentage of total sales than it is today -- and it's a big, big validation of the company's current product strategy and cost discipline. And the outlook is strong: Ford expects its full-year pre-tax profit in North America to be "significantly higher" than last year's, Mulally said on Friday.
In all, it was a great quarter at home for Ford, and a strong proof of Mulally's vision. That's a good thing, because business elsewhere was challenging.
South America: Some challenges, but a good outlook
Ford South America turned in a profit of $54 million, down from $210 million a year ago. As I noted yesterday, higher costs and unfavorable exchange rates posed challenges for the Blue Oval's South American team. Although Ford's "net pricing" -- sale prices, factoring in incentives and discounts -- in South America was favorable, Ford wasn't able to offset currency exchange and economic factors as well as it has in the past, CFO Bob Shanks said in a conference call with the media on Friday.
Mulally said Ford expects South America to be profitable this year, though at a lower level than last year. But he and other senior Ford executives are clearly optimistic about the region's prospects going forward.
Europe: Not surprisingly, a big mess
Ford Europe's results were not good, but nobody should be surprised -- nearly all automakers have lost ground in the region in 2012. Ford Europe lost $149 million during the quarter, down from a $293 million profit a year ago. Sales are down, production is down, and incentives are up, not a recipe for profit -- though Ford's willingness to be relatively stingy with incentives helped keep its losses from being even worse, all things considered.
Ford continues to do better than many of its competitors in Europe -- it has nothing like the challenges that face General Motors' (NYSE: GM ) Opel subsidiary -- but economic conditions have been brutal for auto sales generally. Shanks compared the current environment in Europe with 2008-2009 in the U.S., and it's clear that losses are likely to continue until those conditions improve.
Ford's market share in Europe is unchanged versus the year-ago quarter, and up a bit versus the end of 2011. Nonetheless, and unsurprisingly, the company expects a loss for the year. Asked whether Ford expected to do significant restructuring in Europe, Shanks said the company would think about ways to expand and maximize the value of the company's product line -- read: develop new variations of existing products -- and make incremental cost reductions over time. Shanks suggested that any structural changes would be incremental and would unfold over time, but he wasn't willing to go into detail about what Ford has in mind for the region.
Asia Pacific Africa: Big investments for a big future
Ford posted a small loss in its "Asia Pacific Africa" region, a catch-all for a business unit dominated by China: a $95 million loss versus a $33 million profit a year ago. This wasn't a surprise, as Ford continues to invest very heavily in new production facilities in China and elsewhere, and sales have been only so-so in recent months.
Shanks attributed, in part, Ford's lower sales in places like China to the company's ramp-up to the launch of the all-new Focus -- which kicked off this week at the auto show in Beijing. In addition, floods in Thailand late last year led to delays in the launch of the Ranger pickup, which also weighed on earnings. The Ranger is no longer sold here, but it's still a critical product in many emerging markets. Despite the loss, Ford expects a profit in the region for 2012 as the Ranger launch progresses and new production capacity comes online in China and Thailand.
The upshot: A good result, but a work in progress
Ford's execution remains top-notch. The company's new products have been uniformly strong. Its product strategy -- a streamlined, unified global lineup of products that are first-rate, profitably priced, and produced in quantities just sufficient to meet demand -- is paying off big at home. Ford's making more money in North America than it has in many years, and it's doing it with fewer overall sales -- and a smaller percentage of the high-margin trucks and SUVs that were its lifeblood for many years.
All that said, external factors continue to present challenges for the company overseas. Brutal economic conditions in Europe are likely to pose a challenge for several quarters -- though again, Ford is doing better than most of its competitors in the region. And Ford's strategy of investing for big growth in Asia by mid-decade will weigh on quarterly earnings totals in the near term.
In all, while shareholders may be impatient for growth -- and for the share-price rise many of us had hoped for by this time -- it looks to this Fool as if Mulally and his team are continuing to do their part, increasing the company's strength at home and steering Ford's global operations toward a strong future.
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