This past week was a big one for Ford (F -2.12%). The automaker released its fourth-quarter and full-year 2012 earnings before the bell on Tuesday, and the market's reaction was strong.

I say "fallout," but the truth is, Ford's quarter was a pretty good one. The company posted a pre-tax profit of $1.7 billion, or $0.31 a share, well ahead of the Wall Street estimate of $0.26 per share.

But the stock fell sharply in the hours after the news was released, as investors digested Ford's sobering guidance for Europe.

Strength at home drives good profits
In recent quarters, Ford's strong earnings have been driven largely by its success in its home region of North America. The painful restructuring efforts of recent years are paying off big in the U.S., as strong sales have combined with very busy factories to yield some of the best operating margins in the business.

Ford made almost $1.9 billion in North America during the fourth quarter, thanks in part to strong ongoing sales of Ford's flagship F-Series pickup line, an immense source of profits for the company. But the strength of Ford's entire product line deserves some credit, as the company has been able to reduce incentives, contributing to what it said was a record margin in North America in 2012

That's a good thing, because its results elsewhere have been under pressure.

Expansion in Asia will pay dividends by mid-decade
Ford's "Asia Pacific Africa" region, which includes its fast-growing operation in China, posted a profit of just $39 million -- but there's more to the story. Ford is expanding its Asian presence very quickly, hoping to capture a larger share of the huge Chinese auto market by mid-decade.

That effort is solidly on track: Already its Focus has become one of China's top sellers, and several more of Ford's hot global models are set for release in the Middle Kingdom over the next couple of years. Ford is spending billions on a series of new factories and development centers in China and elsewhere.

That spending should pay off big once all of that new production is on line, but meanwhile, Ford's aggressive pace of investment will keep the region's results near breakeven for at least a few more quarters.

A pessimistic outlook for Europe drove the stock downward
Like rival General Motors (GM 0.94%) and nearly all of the automakers doing business in the region, Ford has been struggling mightily in Europe. Ongoing weak economic conditions have absolutely crushed new-car sales in the region. Last year's auto sales total was the lowest seen in Europe since the mid-1990s, and there are some hints that things could get worse before they start to improve.

Those struggles are hitting affected automakers' bottom lines hard, and Ford is no exception. The Blue Oval's European operation lost $732 million in the fourth quarter, bringing the company's loss in the region to more than $1.7 billion for the full year.

It's not going to get better any time soon, either. Ford revised its 2013 outlook for Europe downward this week, saying that it now expects a $2 billion loss in Europe for the year. That revision -- Ford had previously said that it expected 2013's losses to roughly match 2012's -- and the size of the fourth-quarter loss clearly spooked some investors, who sent Ford's stock down 5% in the hours after the earnings release.

Why Ford is still a buy
While Europe is a costly problem at the moment, it's also an opportunity for Ford -- one that the company is already moving to act on. Last fall, Ford announced a comprehensive plan to return its European division to profitability by mid-decade. It's a good plan, one that leverages Ford's recent experience turning around its North American operation, and most observers give it a strong chance of success -- though Ford has been clear that it will not hesitate to make deeper cuts if needed.

As I explained on Wednesday, the credibility of Ford's turnaround plan for Europe is one factor that makes the stock appealing at recent prices. Ford made $8 billion before taxes in 2012. If Europe had simply broken even, that would have been almost $10 billion. Factor in growth from Asia (and a lower level of ongoing investment) by mid-decade, and Ford's prospects for significant bottom-line growth over the next few years look quite bright.