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Ford Motor Co (F-N) on Tuesday posted a third-quarter profit that trounced Wall Street forecasts due to higher vehicle prices and record-high profit margins of 12 percent in North America.
The No. 2 U.S. automaker posted an operating profit of $2.2 billion US, or 40 cents per share, beating the average estimate of 30 cents per share, according to Thomson Reuters I/B/E/S.
Worldwide, Ford earned $800 million more in pricing than it did last year. Half of the pricing increase came from North America, where Ford earned more than $2 billion and posted margins over 10 percent for the third quarter in a row.
"To me, the story isn't just the results in the quarter, but the consistency of the results," chief financial officer Bob Shanks told reporters.
Ford's strength in North America has offset a sharp downturn in Europe, where Ford lost $468 million in the quarter, and its lagging position in growth markets in Asia, especially China.
Ford expects to U.S. auto sales will be 14.7 million this year. In the third quarter, Ford earned about $2.3 billion in North America. Contribution costs, which includes the cost of commodity hedging, fell by $500 million in the market.
"Twelve percent segment margins is just insane," said Jefferies analyst Peter Nesvold, who has a "buy" rating on Ford. He added: "It is hard to believe that any OEM can sustain 12 percent segment margins over the long term."
Ford's third quarter revenue fell 3 percent to $32.1 billion, better than the $30.9 billion expected by analysts. Net income in the quarter was about $1.6 billion, or 41 cents a share, on par with results from last year.
EUROPE PLAN ECHOS U.S. TURNAROUND
Ford hired Alan Mulally as chief executive in 2006 to steer the automaker's turnaround in North America, which began in late 2005 with the "Way Forward" plan engineered by Mark Fields, who had led North and South American operations for 7 years.
From 2006 to 2009, Ford cut capacity in North America by a little more than one-fifth. New models helped Ford earn an additional $10 billion in revenue from 2006 to 2010.
Mulally's "One Ford" strategy connected Ford's once-disparate business units to lower costs and boost profits. Cost cuts and an improved lineup helped Ford avoid the government financing that was needed to keep U.S. rivals General Motors Co and Chrysler Group LLC afloat in 2009.
"Stronger profitability is the highlight and gives confidence that the One Ford plan can continue to deliver," RBC Capital Markets analyst Joseph Spak said in a note.
"We believe this playbook should eventually drive improved European profitability," Spak said.
Last week, Ford announced three plant closures in Europe to cut costs by as much as $500 million. Ford also signaled a willingness to do more if needed.
The company is also taking steps to keep its inventory at around 40 days supply, lower than the typical 50 days, to deal with lower demand for cars and trucks in Europe.
In the first nine months of 2012, Ford lost a little more than $1 billion in the region in the region. Ford expects to lose at least $3 billion in Europe over the next two years, including at least $1.5 billion this year.
Ford earned $9 million in South America. It also $45 million in Asia Pacific and Africa, the first profit for the region since the second quarter of 2011.