Ford Cruises, but Woes Loom

Ford Motor Co. posted record fourth-quarter profit on a one-time tax allowance, but economic troubles in Europe, growing pains in Asia and heightened competition at home signaled greater turbulence this year.

The heady profit gains of 2011 now are colliding with Europe's debt crisis and heavy investments in Asia that generated losses in the two regions in the latest quarter. Ford's home market again was lifted by strong sales gains even as tougher competition ate into per-vehicle profits, reported The Wall Street Journal.

The company forecast earnings this year would be flat compared to 2011's strong profits, suggesting a period of stable profitability. It also said its share of rising U.S. sales this year would match, or rise only slightly, from the year-ago level.

In a sign of rising competition and cost pressures, Ford said its pre-tax per-vehicle profit in North America last quarter fell to $1,317, its lowest of the year and down from a peak of $2,806 in the first quarter last year.

"We met most of our objectives despite a number of challenges," Ford Chief Financial Officer Lewis Booth said of the quarter ended Dec. 31 during an interview on Friday. "We saw the external environment deteriorate. Europe is challenging and will remain challenging for some time."

Its North American operations earned $889 million last quarter, compared with $670 million for the same period a year earlier. The company countered rising cost for steel and other materials by boosting vehicle prices. However, its loss in Europe widened to $190 million from $51 million while its Asia Pacific and Africa unit, which includes Thailand, swung to a loss of $83 million.

The company's record quarterly profit stems from a $12.4 billion gain from an accounting change to reverse a valuation allowance it made against deferred tax assets in 2006. Ford reversed the allowance in light of recent profits.

Net income was $13.6 billion, or $3.40 a share, compared with $190 million, or five cents, a year earlier. Revenue for the quarter was $34.6 billion.

Excluding the one-time gain, profit was $1.1 billion, or 20 cents a share, below analysts' reduced estimate of 25 cents a share that reflected the slowdown in Europe and flooding in Thailand that reduced production by 34,000 vehicles last quarter. The Dearborn, Mich., auto maker reported a 30 cent-a-share profit in last year's fourth quarter.

Ford shares recovered somewhat from an early drop and were off 3.6 percent to $12.28 in afternoon trading on Friday.

"There's no way of sugar coating the fact that the quarter was light," said Jefferies & Co. auto analyst Peter Nesvold in a research note on Friday. "However, the details suggest automotive margins will be up year-over-year in 2012."

Results show how the debt crisis in Europe is affecting profitability. Ratings firm Moody's Investors Services said on Thursday it expects new-vehicle sales to fall 6.2 percent in the Western European countries this year compared with 2011, with the steepest decline in France.

"There is a lot of overcapacity in the industry, and that is causing an increase in the level of incentives," Ford's Mr. Booth said. It is too soon to say whether Ford's European operations would be unprofitable again this year, he said.

The auto maker had warned earlier this month its Asia, Pacific and Africa business unit would report a loss on lost production caused by Thai flooding. Ford's Thailand assembly plant wasn't directly affected. Supplier plants were affected, which halted or slowed the flow of parts to the plant.

"We do see Asia-Pacific being modestly profitable this year," Mr. Booth said.

Overall, Ford said its automotive pre-tax operating profit this year will improve from last year while earnings at Ford Motor Credit will be lower than in 2011. Total pre-tax operating profit is expected to be equal to 2011. Capital expenditures during the year will be between $5.5 billion and $6 billion as it continues adding plants, especially in Asia.

For the year, the company reported a net profit of $20.2 billion, or $4.94 a share, compared with $6.6 billion, or $1.66, a year earlier. The earnings represent the third straight annual profit for the auto maker, which sidestepped the need for a government bailout and avoided bankruptcy protection, unlike Chrysler Group LLC and General Motors Co.

The results also give Ford its most profitable year since 1998, when it reported income of $22.1 billion, bolstered by the sale of lending arm The Associates, which it had acquired 10 years earlier.

Separately, the auto maker said it will make profit-sharing payments to about 41,600 U.S. hourly employees based on its 2011 financial performance. Ford will pay each worker $6,200. Half of that amount was paid in December, and the remaining will be paid in March. The company said it also plans to make a $3.5 billion contribution to its global pension plans during the new fiscal year.

The company said it still plans to produce 675,000 cars and trucks in North America during the current quarter, an increase of 18,000 vehicles over last year's quarter. It plans to cut first-quarter output throughout the rest of the world, and especially in Europe where production plans will be trimmed by 36,000 vehicles to 410,000 new cars and trucks during the quarter.