Ford (NYSE:F) on Tuesday reported net income of $1.9 billion for the second quarter, a strong result that was helped by strong truck and SUV sales in the U.S., but also by incremental improvements in Ford's operations around the world.
Ford's after-tax profit of $0.47 per share was well ahead of Wall Street's $0.37 estimate, as analysts' worries about lower F-150 sales and Ford's operations in China proved largely unfounded. The result was also well ahead of Ford's $0.40 per-share profit in the second quarter of 2014.
Shares of Ford rose over 2% in early trading on Tuesday.
Ford continues to show progress around the world
Ford's guidance for 2015 calls for sharply higher profits. But executives have been saying that the bulk of the increase would come in the second half of 2015, in part because of the high launch costs and slow production ramp-up of the all-new F-150 pickup, Ford's most profitable product.
That and worries about a slowing economy in China led analysts to conclude that Ford's second-quarter results were likely to be subdued. But those concerns turned out to be largely unfounded. Ford's patient groundwork in several parts of the world is beginning to pay off.
In the U.S., sales of Ford's full-size pickups were in fact down over 6% in the second quarter, a drop that Ford attributed to tight supplies of the new F-150. But strong sales of other products, including the all-new Ford Edge SUV and Transit commercial vans, as well as exceptionally strong pricing for the F-150s that did reach dealers, helped boost the operating margin at Ford's North America unit to a very strong 11.1%. The unit earned a pretax profit of $2.6 billion, an all-time record.
In South America, economic conditions -- notably, a recession in Brazil -- have made for a challenging business environment. But Ford managed to reduce its loss for the quarter to $185 million from $295 million a year ago, CFO Bob Shanks said in an interview that Ford was able to boost its pricing to offset local inflation, which in turn helped offset somewhat higher costs and lower sales volumes.
Shanks noted that the all-new Ford Ka, a minicar one size smaller than the Fiesta, has sold very well in South America since its introduction. Its strong pricing helped boost results, Shanks said.
Ford has been working hard to turn around its money-losing operation in Europe. That work isn't quite done, but Ford essentially broke even in Europe with a $14 million pretax loss for the quarter, a slight drop from the $14 million profit it posted a year ago. Unfavorable exchange-rate shifts hurt Ford Europe's result to the tune of about $182 million, but price adjustments in Russia, careful inventory management, and some strong new models helped Ford mostly offset that loss.
Despite the near break-even result, Shanks reiterated that a full-year loss in Europe remains likely. Normal seasonal effects are likely to make the second half of the year somewhat worse than the first half, he said.
Ford's Asia Pacific region, which includes its fast-growing China operation, earned $192 million for the quarter, an increase of $33 million. Lower sales volumes and slightly weaker pricing were not a surprise, but the impact was offset by some cost improvements. Ford earned $411 million in equity income from its Chinese joint ventures, up $105 million from a year ago.
Special items, cash, and debt
Ford ended the second quarter with $20.7 billion in cash, up $1.2 billion from last quarter, and an additional $11 billion in available credit lines. Ford generated $1.9 billion in automotive operating cash flow during the quarter and paid out about $700 million in dividends.
Ford's long-term debt was $11.5 billion as of the end of the second quarter, up slightly.
For the second quarter in a row, Ford had no special items.
"It was a great first half, but the second half is going to be even better," CEO Mark Fields told analysts and reporters on Tuesday. Ford's overall guidance is unchanged and remains optimistic: Both Fields and Shanks reiterated on Tuesday that 2015 will be a "breakthrough year," with full-year pretax profits between $8.5 billion and $9.5 billion.
Ford did lower its expectations for industrywide sales in China this year and boosted its industrywide sales expectations for Europe a bit. But its guidance for the company's overall 2015 results remained unchanged.