Ford beating General Motors in race to Europe turnaround

When Ford Motor Co. posts fourth- quarter results tomorrow, the numbers probably won’t look great, likely the lowest operating profit of the year. Those figures mask the optimism coming from an unlikely place: Europe.

Using its turnaround in the U.S. as a road map, Ford is moving more briskly to recover in Europe than its competitors. While Ford will report a loss of more than $1.5 billion for the full year in Europe and has forecast a similar result for 2013, Chief Financial Officer Bob Shanks said in an interview this month during the Detroit auto show, those losses will begin to disappear in about two years.

Ford will be about a year ahead of General Motors Co. in efforts to revamp operations in the region, said Peter Nesvold, a Jefferies Group Inc. analyst with a buy rating on the shares. Ford’s board signaled increased conviction in the company’s European restructuring plan by doubling the quarterly dividend earlier this month, he said.

“In the case of Ford, ultimately, this is the team that without external help was able to accomplish in North America what almost nobody thought was going to be possible,” Nesvold, who is based in New York, said in a telephone interview. “The problems aren’t identical in Europe, but they are similar.”

Ford’s fourth-quarter revenue probably slipped 4.5% to $33 billion, the average of 11 estimates compiled by Bloomberg, from $34.6 billion a year earlier. The average of 19 estimates is for 26 cents of operating profit per share, up from 20 cents a year earlier.

Ford Optimism

Optimism about Ford’s prospects in Europe helped its shares rise this month to their highest level since May 2011. Analysts are divided about where it goes from here. Buckingham Research Group, Barclays Plc and Deutsche Bank AG have downgraded the stock within the past week. At the same time, at least seven analysts have raised their price target for the shares this year, according to data compiled by Bloomberg.

The “disconnect between frothy expectations and likely performance makes us unwilling to chase Ford,” Brian Johnson, a Chicago-based analyst for Barclays, wrote in a Jan. 25 report. Ford’s rise since Oct. 24, the day before the mid-decade forecast, through Jan. 25 more than quintupled the S&P 500’s 6.7% gain during that time. “Investor hopes are getting ahead of solid reality. While maintaining a positive outlook for Ford’s business performance, we are cautious on the shares.”

Ford rose 1.6% to $13.80 at 10:29 a.m. New York time. The shares gained 5.6% this year before today.

Ford has said it wants to achieve profit margins of 8% to 10% in North America over the long term. The North American profits are underwriting the European restructuring.

Page 1 of 4 >>

Copyright 2014 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

comments powered by Disqus
Check out Futures Magazine - Polls on LockerDome on LockerDome