Ford's (NYSE:F) third-quarter net income of $1.63 billion was better than expected in a number of ways. While it was down slightly from the $1.65 billion that the Blue Oval reported in the third quarter of 2011, in some ways it represents a stronger result.
As expected, ongoing troubles in Europe did weigh on earnings, to the tune of a $468 million loss. But that was less than the $500-million-plus loss that some analysts had expected, and it was offset by some striking gains in Ford's business elsewhere -- starting right here at home.
Better prices, bigger margins, fatter profits
During a conference call for analysts and media on Tuesday, Ford CFO Bob Shanks offered a number that says a lot about the success of Ford's current business approach: Worldwide, Ford earned about $800 million more in "pricing" -- the ability to get better asking prices for its products -- than it did a year ago.
That's huge. Ford's much-improved cars and trucks have greatly increased the company's competitive position -- and its ability to sell without big discounts -- all over the world. Even in recession-crushed Europe, Ford has been able to keep sales going without resorting to the heavy discounting favored by some of its regional rivals.
But the big story has been here in North America. Excluding taxes and special items, Ford earned $2.3 billion in North America during the third quarter, a big jump over the $1.55 billion it reported a year ago. Improvements in net pricing alone accounted for about $400 million of that increase.
Ford's sales in the U.S. have been mediocre in terms of absolute numbers, with the company's monthly year-over-year increases often far behind those posted by key competitors like Toyota (NYSE:TM) and Honda (NYSE:HMC). But the company's ability to ask and get premium prices for its products -- perhaps assisted by short supplies of some hot models -- made for a strong increase in profits anyway.
These factors also made for operating margins of 12% for Ford in North America, an excellent result in a business where 6% to 8% is considered pretty good -- and even better than the very good 10.8% that Ford posted for the first half of 2012.
What's driving that fat margin? Ford's F-series pickups, says one leading analyst.
A whole lot of pickup trucks
Adam Jonas of Morgan Stanley, perhaps the sharpest of Wall Street's big-name auto analysts, told Bloomberg that he thinks "90 percent of Ford's global auto profit comes from the F-series."
That may be an exaggeration, but it's no secret that its renowned pickup trucks are a huge contributor to Ford's bottom line. The F-Series lineup, which includes the ubiquitous F-150 pickup as well as its heavier-duty siblings, isn't just Ford's best-selling model line -- it's America's, and has been for many years.
It's hard to overstate how critical pickup-truck sales are to Ford -- or to General Motors (NYSE:GM) or Chrysler. For all of Detroit's Big Three, pickups are the high-volume, high-profile, high-margin products that drive just about everything else.
It's an advantage that has proven hard to duplicate: Toyota has tried hard with its Tundra pickup, even going so far as to build a dedicated factory for it in Texas (yes, really), but it hasn't managed to duplicate the results generated by the Big Three year after year.
Big investments in maintaining competitive advantage
Ford has made huge investments in its car lines in recent years, and those have paid off: Models like the Focus are big sellers all over the world, thanks to high perceived quality, advanced features, and much-improved fuel efficiency. Improvements in everything from interior materials to on-road handling have made a big difference with buyers.
Ford has infused those attributes into its pickups as well, and it's marketing some of them heavily. Watching NFL football last Sunday, your humble Fool saw Ford ad after Ford ad, all touting the fuel-efficient "EcoBoost" turbocharged V6 engines now offered in the F-150.
Those engines have proven to be winners for Ford, offering near-V8 power with improved fuel efficiency -- just what corporate fleet buyers, and many individual pickup drivers tired of high gas prices, want to hear.
That has worked out well for Ford's bottom line. While the company still has substantial work to do overseas, shareholders should be pleased by the company's ability to generate big -- and growing -- profits at home.