For quite some time most Ford (NYSE: F ) investors have been frustrated with its stock price because, as the company improved its most important operations in North America and was developing popular vehicles at a rapid rate, losses in Europe dragged the stock price down after every report. Finally we have seen real progress in Europe, and Ford's stock price has largely responded this year. As of this writing, it is sitting at roughly $17.50 – potentially topping its 52-week high of $17.60 in today's trading. Here's a closer look at the situation in Europe and an assessment of how much Ford revised its loss estimates.
By the numbers
According to Ford's Q2 report, SAAR numbers in Europe declined from 14.4 million this time last year to 13.6 million currently. That's obviously unfavorable compared a U.S. market that just witnessed its best SAAR figure in years when in June it hit 15.98 million.
Even amid a European market still in decline, although hopefully bottoming as we speak, Ford managed to increase its wholesale volume, market share, revenues, pre-tax profits, and operating margins – a pretty impressive feat, if I do say so myself.
According to Ford's Q2 report, its market share improved from 7.6% a year ago to 8.1%, led by sales gains from the Fiesta and Focus models. Ford's revenues improved to $7.6 billion from last year's Q2 of $7.1 billion, and Ford continues to improve its focus on retail, rather than fleet sales, for better profitability. Take a look at the drastic improvement below:
The improvement in revenues and market share was offset mostly by the cost of restructuring its operations in Europe. So, while still losing profits in Europe, the losses are in decline: Last year's Q2 loss of $404 million has been trimmed down to $348 million. That also marks a $114 million decline in losses from last quarter.
Prior to Ford's Q2 earnings report this morning management had kept its guidance of a $2 billion annual loss, but today revised it down to $1.8 billion. For the first half of 2013, Ford's only incurred $810 million in losses, so it's possible Ford is still being cautious with its guidance and there's an off chance it could lower its yearly losses from last year's $1.7 billion.
Ford's accomplishing what my Foolish colleague John Rosevear and I figured would happen all along: successfully exporting Alan Mulally's "One Ford" plan overseas.
"Europe is making very good progress in executing our transformation plan, which is focused on product, brand and cost," said Bob Shanks, Ford's chief financial officer in a Ford press release. "Our strong cadence of new product introductions, matching supply with real demand and focusing more on retail customers will enable us to meet our goal of being profitable in Europe by mid-decade."
In the Q2 report, Ford outlines that it has launched seven new products in Europe to improve product offering and quality. It also closed Southampton Assembly and Dagenham Stamping and Tooling in July to reduce capacity and cost. As is evident in the graph above, Ford has improved its brand and market share through quality offerings and a switch of focus to retail sales rather than fleet, which will improve values.
Ultimately, it comes down to what Ford has accomplished so well here in the U.S. – building the company toward sustainable and profitable growth – an endeavor that is now very much on track overseas.
As we keep an eye on the improving losses going into Q3 and Q4, management still stands by its goal to break even in Europe in 2015. The importance of that can't be overstated because, if all else remains the same, and other factors look to improve, improving losses alone would bring in an estimated $1.8 billion annually straight to Ford's bottom line – a huge win for investors over the next two years.
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