Ford Motor Co (F.N) forecast a smaller operating profit for 2012 compared with last year, due in part to wider losses in Europe, where the automaker expects to lose more than $1 billion as the deepening economic crisis hits auto sales.
Ford, which also posted a better-than-expected second-quarter profit Wednesday, said profits in North America and at Ford's finance arm, Ford Motor Credit, would offset losses in Europe and Asia and reduce profits in South America this year.
The No. 2 U.S. automaker's new outlook for Europe falls in line with most Wall Street estimates and is nearly double its previous forecast for an annual loss between $500 million and $600 million.
But some analysts warned that Europe could deteriorate further. During the first six months of 2012, European auto sales fell to their lowest level in nearly 20 years.
"I'm certain Ford is underestimating the situation there, but I think everyone is," Guggenheim Securities analyst Matthew Stover said. "We haven't seen the worst yet."
Chief Executive Alan Mulally said during a call with analysts that Ford is reviewing all aspects of its business in Europe, but declined to provide details about any efforts to reduce capacity.
Ford earlier said its pretax profit would be on par with the levels seen in 2011, when it earned $8.8 billion. In addition to steeper losses in Europe, Ford also expects profits in South America to be "substantially lower" this year.
Concerns over Europe have hit shares of Ford and its larger crosstown rival General Motors Co (GM.N). Ford stock fell more than 1 percent to as low as $8.92, on the New York Stock Exchange on Wednesday.
That represents the lowest price since December 2009, a year in which Ford reported its first profit after losing $30 billion over a three-year stretch ending in 2008.
"As we look over the next five years and lay out all of our plans for our business, we just think the situation in Europe is going to be challenging," Chief Financial Officer Bob Shanks said at a media briefing at Ford's headquarters in Dearborn, Michigan.
NORTH AMERICA, FORD CREDIT CARRY QUARTER
Ford relied entirely on North America and its financing arm to turn a profit in the quarter. Ford commanded higher vehicle prices in its home market, boosting operating profit in North America to just over $2 billion.
During a call with analysts, Chief Executive Alan Mulally said Ford now expects U.S. auto sales to be at the lower end of its forecast of 14.5 million to 15 million, due to weaker-than-expected sales in recent months. Ford's industry forecast includes medium- and heavy-trucks.
Excluding one-time items, Ford earned 30 cents per share. On average, analysts expected a profit of 28 cents, according to Thomson Reuters I/B/E/S.
The automaker reported second-quarter net income of $1 billion, or 26 cents per share, down from $2.4 billion, or 59 cents per share, a year ago. Net income fell partly due to an accounting change this year that raised its effective tax rate to 37.3 percent from 8.4 percent in 2011.
Quarterly revenue fell 6.2 percent to $33.3 billion.
Ford lost $404 million in Europe in the second quarter. The company reported a $5 million profit in South America and lost $66 million in Asia.
FORD "ALL OVER" EUROPE
In Europe, Ford is "facing the situation with urgency," Shanks said. "We're all over it."
To stem the losses in Europe in the near term, Ford is laying off temporary workers, shortening work days and slowing the rate of assembly lines. Ford also has curtailed its spending on sponsorships and advertising, particularly in countries where sales are lowest, Shanks said.
Morgan Stanley estimates that Ford's capacity utilization in Europe is 63 percent, lower than nearly all rivals except for Fiat SpA. Europe accounted for a little more than one-quarter of Ford's revenue last year.
"Everyone is being quite aggressive, but, I think, it would appear that the Germans are being very, very aggressive, taking advantage of strong brands and the strong position that they hold in the region," Shanks said.