Ford Profit Beats Estimates on Global Strength

Photo credit: Ford Motor Co.

Once again, strong sales of pickups like this F-150 drove big profits for Ford in North America. But overseas improvements were what made this quarter's result a record one for Ford. 

Ford (F 0.02%) reported net income of $1.27 billion for the third quarter on Thursday, as market-share gains in all of its global regions combined to drive a record pre-tax profit. 

Excluding taxes and some one-time items, Ford made $2.6 billion, or $0.45 a share. That handily beat the Wall Street estimate of $0.37 cents a share, the average of a survey of analysts conducted by Bloomberg. It also beat the $0.41 earned by Ford in a very strong year-ago quarter.  

Ford also raised its guidance for its total pre-tax profit and for its profit margins for the full year on Thursday, a sign that management expects the good results to continue.

Good results in all corners of Ford's business
The best way to understand the state of Ford's business is to look at each of its major divisions in turn. Here's a breakdown of how things went for the Blue Oval in the third quarter. 

Note that all of these divisional profit and loss numbers exclude the effects of taxes, as that's how Ford reports them.

• North America continues to be the "engine" driving Ford's global profits, as CEO Alan Mulally often says. The unit earned $2.3 billion before taxes, about equal to its results in the third quarter of 2012. As was widely expected, Ford's operating margin in North America dropped from the spectacular 12% posted a year ago to a merely outstanding 10.6% this time around; but increased U.S. sales -- particularly of Ford's market-leading pickups -- and close attention to costs were enough to make up the difference.
• South America made $159 million during the quarter, a $150 million improvement from a year ago. Sales and revenue were both up, as market conditions improved; Ford was also able to increase its market share in key South American markets during the period. Ford had previously said that it expected to break even for the full year in South America. That guidance was raised a bit on Thursday, with Ford now saying that a full-year profit is possible.
• Europe has been a trouble spot for Ford, but things may be looking up: Ford lost $228 million in Europe during the third quarter, a $240 million improvement from a year ago. Ford lost over $1.7 billion in Europe last year, but launched a major turnaround plan a year ago. With Ford's market share in Europe rising, that turnaround plan is working better than expected: Ford had previously said that 2013 losses in Europe would likely equal 2012's; on Thursday, Ford said it now expects 2013's full-year losses to be lower. 
• Asia Pacific Africa made $126 million in the quarter, up $81 million from a year ago. This is Ford's "catch-all" region for the rest of the world. The dominant market here is China, where Ford has been investing aggressively in factories and infrastructure. Those investments were expected to keep the region close to break-even until mid-decade, but for the second quarter in a row, Ford has managed a meaningful profit. The story here is simple and good: Ford's sales in China are booming. 
• Ford Motor Credit is the company's in-house bank, providing financing to Ford dealers and customers. The unit earned $427 million in the quarter, up $34 million from a year ago as higher sales volumes in North America drove improved results.

Ford bumps up its full-year guidance
Ford took one-time charges of $498 million for special items during the quarter. That includes charges relating to Ford's European restructuring — the company closed two U.K. factories during the quarter — and $145 million associated with Ford's ongoing pension "de-risking" effort, which will continue through next quarter. 

The company also raised its full-year guidance, as gains overseas may have come somewhat faster than Ford's leadership expected. Ford now says that its full-year 2013 profit before taxes will beat last year's $8 billion pre-tax gain, and its full-year operating margin for its automotive businesses (that is, excluding Ford Credit) should be higher than last year's as well. Both were previously expected to be roughly equal to full-year 2012 results.