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Ford Motor Company (F)’s Second-Quarter Earnings: A Preview

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Ford Motor Company (NYSE:F) is set to report its second-quarter earnings on Wednesday. What should we expect?

Since the second quarter began back in April, Ford Motor Company (NYSE:F) stock has gained more than 30% — an impressive run for America’s oldest automaker. But will Ford’s second-quarter profits justify that price jump? Let’s take a closer look.

Here’s how Ford is making money
Before we dig into the numbers, here’s a basis for comparison. Ford Motor Company (NYSE:F) reported earnings of $1.04 billion in the second quarter of last year, and $1.6 billion, or $0.40 a share, in the first quarter of 2013.

Analysts polled by Bloomberg expect Ford’s earnings for the second quarter to come in a little lower, around $0.37 a share. But as I’ll explain below, that might be a little conservative — or pessimistic.

The best way to understand Ford Motor Company (NYSE:F)’s earnings reports is to look at the breakdown of profits by each of its major business units. Those include four regional units for its automotive business, plus Ford Credit, its in-house financing arm. Let’s look at each in turn.

One note: The overall earnings numbers I gave include the effects of taxes, but the numbers to follow for each of the divisions don’t. That’s the way Ford reports them.

North America
North America is the unit that has generated much of Ford Motor Company (NYSE:F)’s profits in recent quarters. Ford’s pre-tax earnings in North America were just over $2 billion in the second quarter of 2012, and $2.4 billion in the first quarter of this year. What was the difference? Much of it had to do with sales of Ford’s F-Series pickups, which have been very strong this year thanks to booms in construction and energy.

Those booms have continued. Ford Motor Company (NYSE:F) sold 198,643 F-Series pickups in the U.S. in the second quarter, a 26% increase over its sales in the same period last year. Pickups are very profitable products, and they generate a huge portion of Ford’s overall profits in its home market — and lately, its total profits.

Well-equipped pickups like this top-of-the-line F-150 Limited are huge profit generators for Ford. Photo credit: Ford.

Ford’s $2.4 billion pre-tax profit in North America last quarter was its highest since at least 2000. Given the continued boom in pickup sales, Ford’s success on other fronts, and its ability (so far) to keep incentives in line, I wouldn’t be surprised if this quarter’s profit was in the same neighborhood, or maybe even a little higher.

South America
South America earned just $5 million a year ago and lost $218 million last quarter. Cheap imported competition (sound familiar?) and some unfavorable exchange-rate moves have hit Ford’s South American arm hard. Ford had warned that last quarter’s loss could hit $300 million because of a currency devaluation in Venezuela, only to have it come in better than expected.

The subcompact EcoSport SUV, based on the Fiesta’s underpinnings, is a strong seller in Brazil — and in markets like India as well. Photo credit: Ford.

Ford has been rolling out new and refreshed models in South America, with some success. Sales of the just-refreshed Fiesta and the new EcoSport SUV have given Ford some growth — Ford’s sales in Brazil, the region’s largest market, are up about 9% so far this year. But it’s clear that Ford still has more work to do, and there are more new models on the way.

Long story short, I don’t expect another big loss, but any profit is likely to be small. South America is still a work in progress.

Europe
Europe has been Ford’s biggest headache for a while now, as recessions have driven new-car sales to a 20-year low. Ford Europe lost $404 million in the year-ago quarter, and $462 million more last quarter. Ford has warned that it could lose a total of $2 billion in Europe this year, so another $400-billion-plus loss this time around wouldn’t be much of a surprise.

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