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Ford shares down as 4Q profit eclipsed by Europe

Wednesday - 1/30/2013, 4:22am  ET

FILE - Ford Motor Company's logo is shown atop its world headquarters in Dearborn, Mich., in this June 5, 2003 file photo. Ford's net income fell from $13.6 billion in the same quarter last year, but that figure included a big accounting-related gain it was announced Tuesday Jan. 29, 2013. Without that gain, Ford's earnings were up from $1 billion in the fourth quarter of last year. (AP Photo/Paul Sancya)

BY DEE-ANN DURBIN
AP Auto Writer

DEARBORN, Mich. (AP) -- Ford is posting record profits in North America, but it's not enough to quell unease about the company's prospects elsewhere.

Ford's shares dropped nearly 5 percent Tuesday after the company said it expects to lose more money in Europe this year and break even in Asia and South America. The final straw for investors: Ford said sales will increase next year but profits should remain about the same, dashing hopes that margins will continue to grow.

The outlook "brings overly optimistic investor expectations back in check," Barclays analyst Brian Johnson said in a note to investors.

The No. 2 U.S. automaker posted a record pretax profit of $8.3 billion in North America in 2012, the result of a 6-year turnaround orchestrated by CEO Alan Mulally. It's reaching back into that playbook to fix its operations in Europe, where it lost $1.75 billion. The European restructuring plan announced in October was one reason Ford's stock has been trading at levels not seen since 2011.

But Tuesday, Ford forecast a loss of $2 billion in Europe and company executives and Wall Street analysts reminded investors that improving the performance outside of North America -- in both Europe and Asia -- will take time.

"These things don't happen in three months, six months or even a year. But we will get there," Chief Financial Officer Bob Shanks said in a phone call with investors and media.

Shares fell 64 cents to $13.14, wiping out most of their gain for this year. Just two weeks ago, the shares hit an 18-month high of $14.30 after Ford announced it was doubling its annual dividend to 40 cents per share.

The outlook overshadowed another strong performance in North America last year. Ford's F-Series pickups retained their decades-long place as the best-selling vehicles in the U.S., while sales of the Focus small car jumped 40 percent. Even the Escape SUV and Fusion sedan remained top sellers despite recalls of some new models for safety problems.

Ford made more money on every vehicle because it cut back on deals and added features that U.S. buyers paid a premium for, such as inflatable seatbelts. Auto pricing site Truecar.com estimated that U.S. buyers paid an average of $31,935 per Ford vehicle last year, or $500 more than the year before.

Ford is distributing record profit-sharing bonuses of $8,300 to its 45,800 U.S. workers as a result of its North American profits.

But that's where the good news ends.

Ford's 2012 earnings declined by $300 million to $5.66 billion because of the loss in Europe. Earnings fell to $1.42 per share from $1.51 per share.

Europe sales fell by 15.5 percent last year, and the company doesn't expect things to get better soon.

"Europe will hit bottom this year," Shanks said.

To stem the losses, Ford is employing the strategy it used in its U.S. operations six years ago. It's closing three European factories by 2014, affecting 6,200 employees, and introducing 15 new vehicles to Europe over the next five years, including the iconic Mustang sports car.

Jefferies analyst Peter Nesvold, who recommends buying Ford stock, said Ford's stunning turnaround in North America -- where it lost $1.9 billion as recently as 2008 -- should convince investors that it can have similar success in Europe.

"One has to believe the shares have tremendous upside if Ford comes even close to replicating its North American restructuring success in Europe," Nesvold wrote.

In Ford's Asia Pacific and Africa region, sales rose 15 percent for the year. But an aggressive expansion across the region is cutting profits. In China alone, Ford plans to build two new plants, introduce the Lincoln brand and bring out eight new vehicles in the next two years. Revenue in Asia rose 19 percent to $10 billion in 2012, but the division reported a pretax loss of $77 million.

Asia is becoming increasingly important to Ford, which has set a goal of selling one-third of its cars and trucks there by 2020, up from about 18 percent now. But the region is a long way from becoming a big revenue-generator, in part because Ford sells smaller vehicles in China that don't command the high prices of its SUVs and trucks.

Sales of the Focus small car are now higher in Ford's Asia Pacific region than in the U.S. or Europe. Ford sold 86,000 Focus sedans in Asia Pacific in the third quarter, up 79 percent from last year. By comparison, North American Focus sales were up 30 percent to 65,000 and European sales were down 18 percent to 74,000.

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