If you're a Ford (NYSE: F ) shareholder like I am, last week's second-quarter earnings report was pretty much awesome. Ford set pre-tax records in North America largely driven by success in what it refers to as the super segment, and in the full-size pickup segment. It reduced its year-end expectations for losses in Europe, which came in lower than last year and the prior quarter. In fact, there were so many positive aspects to the report it became absurdly easy to miss some of the finer details – such as South America returning to profitability and Ford Motor Credit's strong performance. Here's a look at these two finer details, and a take on why they're a big deal.
Ford Motor Credit
Ford's finance arm is really a hidden gem in the grand scheme of things. Many people still confuse Ford's mountain of debt as being part of its automotive segment, which isn't the case. The majority of Ford's more than $100 billion in total debt is from Ford Motor Credit; it takes huge loans and dishes them out to consumers that need to borrow to purchase a vehicle, and makes a decent profit doing so.
For the second quarter, FMC raked in a pre-tax profit of $454 million which was a slight increase above last year's $438 million mark. If you need some perspective on why this is important, look no further than crosstown rival Chrysler. Chrysler's second-quarter modified operating profit was $808 million and its net income posted at $507 million. That's right, FMC almost generated more income than all of Chrysler.
Just as important to Ford as FMC and operations in North America is its goal to improve its profitability overseas.
South America has been a challenging region but Ford has been able to rebound its numbers there in the second quarter. Ford witnessed its wholesale volume and revenue increase from last year by 24% and 28%, respectively. The driving force behind the improvements were a higher SAAR across the industry, increasing from 5.3 million to 5.8 million. Ford also improved its market share and had favorable changes in its dealers' offerings, providing new products and better pricing.
Ford's second-quarter pre-tax profits in South America came in at $151 million, a large improvement over 2012's mark of $5 million. It's an even better improvement when you consider that, in the first quarter of this year, Ford lost $218 million in the region. That still puts South America in the red for the first half of 2013, but if Ford can keep the profitable trend continuing, then it will finish 2013 in the black – a very positive development for Ford's year-end report.
People often overlook these two details in the grand scheme of Ford's quarterly earnings, but their effect on the stock's momentum shouldn't be underestimated. For example, FMC is now producing more profit than Europe is producing losses.
Ford continues to surge in North America, it's most important region hands down, and looks to keep taking back lost market share. Its year-to-date increase from 15.7% to 16.5% was the best gain by any full-line automaker in the U.S. As overseas regions continue to improve, such as South America and Asia, Ford's stock price will continue its upward climb.
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