Ford's Sales Jump Again in Europe, Setting the Stage for More Profit Growth

By Markets Fool.com

European sales of high-performance Fords like this Fiesta ST rose 63% in July. These models are profit powerhouses for the Blue Oval. Image source: Ford Motor Company.

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Ford Motor Company (NYSE: F) said on Friday that its sales in Europe rose 4.5% in July, giving the Blue Oval a market-share boost as it looks to build on a very profitable first half of 2016.

Ford is gaining market share in Europe

Ford sold about 105,200 vehicles in the 20 western and central European markets that it considers its core European market in July. That's a 4.5% increase over its year-ago result, and it outpaced the overall market's 1% drop to give Ford a market-share boost.

Ford's market share in those "Euro 20" markets rose to 8.1% in July, up 0.5 points from July of 2015. For Europe as a whole (what Ford calls the "Euro 50"), including Russia, Turkey, the former Soviet republics, and the countries of eastern Europe, Ford's market share in July was 7.7%, up 0.3 points from a year ago.

Continued sales growth for Ford's high-profit models

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SUV sales have been a high point for Ford around the world in recent months, and Europe has been no exception. Rising SUV sales helped Ford to a strong $467 million profit in Europe in the second quarter, and that trend continued into July.

Euro 20 sales of the small, Fiesta-based EcoSport crossover jumped over 60% from a year ago, while the Kuga (the European version of Ford's Escape) posted a 16% gain. Ford just added the midsize Edge SUV to its European lineup in a bid to win a bigger slice of the market; it sold about 1,000 of them last month, a number likely to rise as supplies increase.

Another factor in that big second-quarter profit: Ford is selling a higher percentage of "high specification" models, its top trim lines. Generally speaking, the more options added to a new vehicle, the fatter its profit margin -- and Ford has become very, very good at tempting buyers toward more upscale versions of its mainstream models.

A Ford Kuga in luxurious "Vignale" trim. The Vignale models have given Ford a way to earn luxury-car profit margins with its mainstream models in Europe. Image source: Ford MotorCompany.

Ford said that models with its "Titanium"-level trim made up a whopping 72% of its total sales in the Euro 20 markets in July, up 36 percentage points from a year ago. Ford is also seeing strong sales growth with its even-higher-level Vignale trim lines, and of its high-profit, high-performance models.

Big gains for Ford's commercial vehicles in July

Commercial-fleet sales are an important part of Ford's business in Europe, just as they are in the U.S. Ford doesn't offer its F-Series pickups in Europe, but it does offer a midsize pickup with a familiar name -- Ranger -- along with other models, including its well-regarded Transit line of vans.

Ford recently gave its midsize Ranger pickup a facelift and some new features. European sales are up 40% this year through July. Image source: Ford Motor Company.

All have been selling well: Ford has been the top-selling brand in Europe's commercial-vehicle market in 2016, a trend that continued in July with sales of Ford's commercial vehicles as a group up 21% from a year ago. Sales of the recently revamped Ranger rose 45% year over year, and the Transit vans posted a 23% sales gain.

A note about Brexit worries

During Ford's second-quarter earnings call last month, CFO Bob Shanks expressed concern that the U.K.'s decision to leave the European Union could lead to a slowdown in new-vehicle sales in that country. Britain is Ford's single most important market in Europe, and Shanks said a U.K. slowdown could dent Ford's European profits by as much as $150 million in the second half of 2016 -- and as much as half a billion dollars next year.

Are those concerns justified? It's probably too early to call it a trend, but Ford's sales in the U.K. did fall 3% in July to about 29,800 vehicles. (Year to date, Ford's U.K. sales are up about 1% over a very good 2015 result.) We'll keep an eye on this as the year goes on.

The upshot: Strong Europe profits look set to continue

Ford's largest and most profitable market is still the United States; its U.S. sales were about double its Euro 20 sales total last month. Still, Europe has always been an important market for Ford, and it has become more important as Ford has expanded its European product lineup over the last few years.

Ford, like most of its rivals, posted big losses in Europe in the first few years of the decade. While rival General Motors(NYSE: GM) is just now gettingclose to sustainableprofitability in the region, Ford has beensolidly in the black for a while, with pre-tax profits of $901 million in the first half of 2016. The usual seasonal rhythms of Europe's new-car market (and those Brexit pressures) will likely make for a less impressive second half, but July's results suggest the trends that helped Ford bring home big profits in the first half of the year are still solidly in place.

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John Rosevear owns shares of Ford and General Motors. The Motley Fool owns shares of and recommends Ford. The Motley Fool recommends General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.