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Ford Europe Inches Into The Black; Is It All Downhill Now?

“Even though it was a small profit, it was a profit. It shows our transformation plan is working”

Ford Europe made its first profit since 2011 in the second quarter and looks set fair on the road back to profitability, benefitting from harsh decisions to slash production and headcount.

Ford has removed 18 per cent of European capacity including the closure of a commercial vehicle plant in Britain and a car assembly plant in Genk, Belgium.

Ford CFO Bob Shanks, perhaps stepped into the realms of hyperbole, described the profit as a “great outcome”.

“Even though it was a small profit, it was a profit. It shows our transformation plan is working,” Shanks said.

Investment bank Morgan Stanley was a bit more restrained, saying Ford Europe is pointing in the right direction, after years of losses.

“We believe Ford’s restructuring plan in Europe can result in sustainable, albeit modest, positive profits in the region. We believe their earnings quality and capacity repositioning in the region can lead to positive earnings surprises from 2015,” Morgan Stanley said in a report.

Ford Europe made $14 million in the second quarter compared with a loss of $320 million in the same period of 2013, citing lower costs and favourable exchange rates. Ford Europe last made a profit in the second quarter of 2011, with $176 million. Ford also said it had two special charges in the period totalling $481 million – $152 million relating to the closure of Genk, and $329 million from its investment in the Ford Sollers Russian joint venture.

Normal seasonality
International Strategy and Investment (ISI) applauded the progress, and saw the performance as vindicating its forecast that Ford Europe will make a swing in profits totalling $1.8 billion by 2015.

“While profitability in Europe is expected to fall in the second half due to normal seasonality, we find it reassuring to see the company back in the black in the second quarter. One of the principal pillars of our Ford investment case is our more positive view on the company’s European operations where we believe Ford can deliver a $1.8 billion positive earnings swing in 2015 versus 2013,” ISI’s George Galliers said.

Ford recently revealed adventurous plans for its product line-up in Europe, including the introduction of Edge SUV for the first time. Ford will sell the Edge here in 2015, and the storied Mustang sports car. The new Mondeo large sedan (Fusion in the U.S.) is also expected to go on sale next year, after a two year delay. Ford will also be face-lifting its Focus small sedan and renewing its S-Max and Galaxy minivans.

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