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Is Ford Turning the Corner in Europe?

For the last couple of years it was frustrating to watch Ford (NYSE: F  ) put the finishing touches on its turnaround only to be dragged down each earnings report because of significant losses in Europe. This year has seen a change for the better: Losses are narrowing, and it's no coincidence that Ford's stock price has responded favorably, up almost 80% over the last year.

Last quarter, Ford lowered its 2013 loss estimate from $2 billion down to $1.8 billion. Through the first half of the year, Ford only lost $800 million; if the region improves, Ford has a chance to lose even less than expected. Let's take a look at the details of Ford's just-released July numbers for Europe.

By the numbers
Ford's sales in Europe grew twice as fast as the overall industry in July, up 8.7% to 90,000 vehicles sold. It also marked the fourth straight month of market share gains, an increase from 7.6% last July to 8%. 

Sales of the Fiesta were up almost 2% in July, reaching 22,000 units sold. Ford is actually increasing production at the assembly plant in Germany by 15% to meet improving demand for its new Fiesta ST model. Sales of the Focus and Kuga were up 13.2% and 33% for 18,700 and 6,000 units sold, respectively.

Strong demand for new models such as the Fiesta, Kuga, and Focus have also lead to strong gains in each segment. Ford's passenger car retail market share in the U.K., Germany, France, Italy, and Spain was 8.3% through July, an increase of 1.1 percentage points. That makes it Ford's best year-to-date numbers since it started tracking retail share in 2010.

Another strong point in all the numbers was the fact that sales to rental companies declined. These are less profitable sales and often lower the resale value of Ford's vehicles. Sales to rental companies decreased from 32% to 24% of sales – slightly better than the industry average.

Graph by author, information via Ford's earnings presentation in July.

With improved sales and retail share, Ford was still cautious to say the recovery in Europe is here to stay.

"It was welcome news to see overall vehicle sales improved compared with a year ago, and we are especially pleased that Ford's sales rose faster than the industry," said Roelant de Waard, vice president, marketing, sales, and service, Ford of Europe, in a press release. "We are seeing signs of stabilisation in the market, but it is too early to say a recovery is under way given the continuing economic uncertainty." 

Bottom line
Last quarter Ford reported a total loss in Europe of $348 million, a $114 million improvement from the first quarter. It's very positive news to see Ford kicking off its Q3 in Europe with improved sales figures and even increasing production for some of its vehicles. If it can mitigate the amount of incentives throughout the quarter it could be setting itself up to beat expected losses in the region for the full year – a very positive development for Ford and its investors. Management is still planning to break even in the region by mid-decade, and that plan seems well on its way.

Improving profitability in Europe is very important to Ford. In addition to Europe, In order for Ford's stock to soar, a few critical things need to fall into place. In The Motley Fool's special free report, "5 Secrets to Ford's Future", we outline the key factors every Ford investor needs to watch. Just click here now for your free report.

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9/23/2016 4:01 PM
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