Earnings Preview: Ford 2Q earnings

DETROIT (AP) -- Ford has set some high expectations for its second-quarter earnings.

Booming sales of pickup trucks likely gave Ford a boost in North America in the April-June period. The Dearborn, Mich.-based automaker also saw big gains in China thanks to new vehicles like the Kuga and EcoSport SUVs. And there's a sense that the European market is finally stabilizing after years of sales declines.

Ford reports its second-quarter earnings Wednesday.

WHAT TO LOOK FOR: U.S. sales of large pickups have jumped 22 percent in the first six months of this year, or nearly three times the pace of total industry sales. As the economy improves, contractors, oil and gas drillers and other businesses are rapidly replacing the aging trucks they held on to during the recession.

In a note to investors, Barclay's analyst Brian Johnson says he expects Ford to post a pretax profit of $2.4 billion in North America in the second quarter, up from his previous estimate of $2.3 billion. Johnson cites the huge demand for the company's best-selling vehicle, the F-Series pickup. But he cautions that Ford's profit margins won't necessarily improve, since the automaker prefers to reinvest its profits into future products. He expects a North American profit margin of 10.9 percent, slightly lower than Ford's first-quarter margin of 11 percent.

Jefferies analyst Peter Nesvold says Ford's North American profits will be dented by an increase in incentive spending during the quarter. Auto pricing site TrueCar.com estimates Ford's U.S. spending on rebates and other deals rose 19 percent during the quarter to an average of $3,032 per vehicle, or around $400 more than the industry average.

Europe was a surprising bright spot for Ford toward the end of the second quarter, thanks to new vehicles like the Fiesta and Mondeo sedans. Ford's European sales rose 6 percent in June even as industry sales dropped 6.5 percent.

Ford's Europe chief Stephen Odell said earlier this month that the European market appears to have reached bottom. Ford still expects to lose $2 billion in Europe this year, he said, largely because of costs to close plants and lay off workers. Ford expects to return to profitability in Europe in 2015.

Johnson says Ford's increased production and lower sales to low-profit rental fleets helped the company in the second quarter.

Johnson expects a small profit in Ford's Asia Pacific region. Ford's sales jumped 47 percent in China the first six months of this year, or more than four times faster than total industry sales growth of 17 percent. But those gains were offset by Australia, where sales have been hurt by a flood of other imports and the strong Australian dollar. Ford said in May that it plans to close its two Australian plants and lay off 1,200 workers by 2016.

In South America, another trouble spot, increased production was likely offset by civil unrest in Brazil and continuing economic turmoil in Argentina and Venezuela. Johnson expects a second-quarter loss of $28 million in the region.

WHY IT MATTERS: Ford's shares began the year at $13 but have been on a steady climb ever since. They're now approaching their 52-week high of $17.29, and Nesvold thinks $20 is realistic by the end of this year. Nesvold has a "Buy" rating on Ford's stock, and says the company has strong earnings potential over the next two to three years as the situation in Europe improves.

Ford, which employs 166,000 people worldwide, has made remarkable progress since nearly going bankrupt in 2006. But Wall Street has long cast a skeptical eye on the cyclical auto industry, and Ford is still trying to prove that its turnaround will stick and it won't return to the bad habits of the past, like overproduction and steep discounting.

WHAT'S EXPECTED: Analysts polled by FactSet forecast earnings of 37 cents per share on revenue of $34.9 billion.

LAST YEAR'S QUARTER: Ford earned 30 cents per share on revenue of $31.4 billion.