MarketWatch First Take: Can Ford win in Europe?

SAN FRANCISCO (MarketWatch) � Ford Motor Co.�s latest results told tales of victory and defeat. Investors paid most attention to defeat.

Ford reported Tuesday its fourth-quarter profit jumped 54% from a year ago, far better than Wall Street expected.

But Ford F �shares promptly tumbled 6% to $12.95, making Ford one of the session�s worst performers. Read about Ford's fourth-quarter results.

Among the reasons for the sell-off was Ford�s prediction that its 2013 operating profit will be no better than in 2012. Investors were hoping for more than that, especially given the company�s solid performance this past year in North America.

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But then there�s Europe. Ford lost $732 million there this past quarter, almost four times its $190 million year-ago loss. For the full year, Ford Europe�s losses plunged to $1.75 billion from $27 million in 2011.

The end is not in sight.

Despite lots of heavy lifting already, Ford Europe warned of a $2 billion loss this year. That�s up from its previous prediction of a $1.75 billion loss and dwarfs gains the company has made in other overseas markets.

So what�s up with Europe? The problems are many. Worn down by a string of national debt crises and economic turmoil, European consumers are in no mood to extend themselves financially. That�s killing car sales.

Meanwhile, the euro has regained ground against the dollar, raising the cost of pensions Ford pays to thousands of its European retirees.

On the one hand, Ford assures investors it can meet the challenge, claiming it�s �on track to deliver its European transformation plan.�

But it also had this to say: �Since providing guidance in October, Ford�s outlook for industry volume has deteriorated � The business environment remains uncertain, and Ford will continue to monitor the situation in Europe and take further action as necessary.�

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It�s not clear what further action the company has in mind. It�s well on its way to cutting manufacturing capacity there by 18% and has added about $1 billion, included in its $2 billion loss estimate, in restructuring charges.

Despite the unnerving update, several auto industry analysts urged investors to stay calm.

Peter Nesvold at Jefferies wrote: �We would not get too caught up in the very near term; one has to believe the shares have tremendous upside if Ford comes even close to replicating its North American restructuring success in Europe.�

Sterne Agee�s Michael Ward noted: �European restructuring actions are accelerating � Inventory levels in Europe are at an all-time low which should help to provide more stability in production and pricing going forward.�

So there it is. Ford�s aggressive European restructuring campaign could give it a big jump on competitors when the auto market eventually recovers. That was certainly the case in North America.

If it again proves the case in Europe, today�s dip might make it a good time to buy Ford. But given Europe�s problems, an un-hedged conviction play is probably not a good move for the impatient investor.

� Jim Jelter