DETROIT (Reuters) - Ford Motor Co (F.N) posted a higher-than-expected first-quarter profit on the strength of its North American unit, but overall structural costs spiked as the company took steps to re-invest in its global lineup and shore up its European operations.
The No. 2 U.S. automaker paid an additional $900 million in manufacturing, engineering and other costs partly due to its efforts to ensure that Ford cars and trucks remain attractive in an increasingly competitive market for new vehicles.
Under Chief Executive Alan Mulally, Ford is looking to build more vehicles off global platforms, or chassis, to cut costs and quicken product development. This year, Ford aims to build more than 85 percent of its volume using nine global platforms.
“It costs so much to engineer a vehicle,” Mulally said during a conference call with analysts and reporters. “If you can do that and you can then provide that vehicle to all four regions of the world and everyone is sharing in that engineering expense, clearly all parts of the business are benefiting.
“We actually can more rapidly and more realistically expand our offerings around the world to a degree that we never have been able to in the past,” he added.
About 25 percent of the structural cost increase in the quarter stemmed from Ford’s efforts to restructure operations in Europe, where an economic downturn has hit consumer demand for new cars and trucks, Chief Financial Officer Bob Shanks said.
Higher costs also pinched Ford’s margins in North America, despite an increase in sales and transaction prices. North American margins were 11 percent, historically high for the company, but slightly lower than some analysts expected.
Barclays Capital analyst Brian Johnson said in a research note that “Ford prefers to re-invest in the product content rather than see margins run into the mid-teens.”
Ford posted a first-quarter pretax profit of $2.1 billion, or 41 cents per share. This topped the average analyst estimate of 37 cents per share, according to Thomson Reuters I/B/E/S.
Revenue in North America, where Ford draws the bulk of its earnings, increased by one-fifth as a recovering U.S. housing market helped spur sales of the F-150 pickup truck.
Ford also reiterated that it expects to lose $2 billion in Europe this year, but added that its restructuring was on track.
Shanks told reporters that recent economic data in the region painted a cloudy picture of when Europe would eventually rebound. He added that automakers “seem to be running along the bottom now” in Europe. The industry may see some stabilization toward year-end or early 2014, he added.
During the quarter, Ford’s market share in Europe was 7.7 percent. The company aims for European market share to be even with 2012, when the company held 7.9 percent of the market.
“So we clearly expect to do better as we move forward in the balance of the year,” Shanks said.
Ford’s first-quarter net income was $1.6 billion, or 40 cents per share, up from $1.4 billion a year earlier. Revenue rose to $35.8 billion from $32.4 billion.
Ford’s pretax profit in North America reached its highest level since at least 2000, when it began reporting the region as a separate unit. The company posted a $2.4 billion profit there, with sales volume up 17 percent.
Ford lost $462 million in Europe, reflecting higher costs and the economic downturn’s impact on consumer demand for new cars and trucks. In South America, Ford lost $218 million due to unfavorable exchange rates, particularly in Venezuela.
In Asia Pacific/Africa, Ford earned $6 million. In China, Ford’s market share was 3.6 percent in the first quarter.
Fords shares were little changed at $13.36 in afternoon New York Stock Exchange trading.
Reporting by Deepa Seetharaman and Paul Lienert; Editing by Lisa Von Ahn and Maureen Bavdek