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The Associated Press April 25, 2012, 12:30PM ET

Earnings Preview: Ford's 1Q earns expected to drop

Ford Motor Co. is expected to report lower first-quarter earnings Friday. Results will be hurt by slow sales outside North America, a new higher tax rate and a tough comparison to the first quarter of 2011, which was its best first quarter since 1998.

WHAT TO WATCH FOR: Overseas sales are expected to stumble. European sales fell to a 14-year low in March, hurt by economic uncertainty. Sales were slow in South America, where Ford has old products, and China, where a sluggish economy is holding back buyers. Ford's China sales dropped 16 percent in March alone.

Ford's U.S. business will also be scrutinized. Its sales rose in the U.S. in March, but the company lost market share to rivals like Chrysler and Kia. Earlier this month, Ford's Americas President Mark Fields warned that Ford will continue to lose U.S. market share this year because it can't produce enough cars and trucks to meet rapidly rising demand.

Market share losses aren't an immediate concern, as long as Ford doesn't resort to big incentives to win back sales, says Citi auto analyst Itay Michaeli. He says Ford continues to fetch healthy prices that mitigate share losses. estimated that Ford and Lincoln buyers paid an average of $31,758 for their vehicles in March, making the company second only to General Motors Co. among the top seven automakers.

Michaeli says the cost of steel and other raw materials has moderated since last year, when they were a significant drain on Ford's earnings. But the company could face an even more serious problem in the coming weeks. Ford executives will likely discuss Friday how much the company will be impacted by the shortage of the resin PA-12, which is used in fuel and brake lines. A German factory that makes much of the global supply of PA-12 exploded last month, and automakers are scrambling to avoid shutting down assembly lines.

Ford's results will also likely be impacted by a change in its tax rate. Now that it's making money again, the company moved assets and tax credits that had been dormant back onto its books. As a result, its corporate tax rate is expected to jump from around 9 percent to 30 percent.

WHY IT MATTERS: Ford got a big vote of confidence this week from Fitch Ratings, which upgraded the automaker to investment-grade status for the first time in six years. But the other ratings agencies will watch Ford's results closely. They'll want to see how it handles the crisis in Europe, its big expansion in Asia, its growing pension obligations and other issues. Ford needs investment-grade ratings from at least two agencies before it can get back its blue oval logo and other assets it hocked in 2006 in exchange for a $23.5 billion restructuring loan.

WHAT'S EXPECTED: Analysts surveyed by FactSet expect Ford to earn 36 cents per share, before items, on revenue of $32.3 billion

LAST YEAR'S QUARTER: Ford's net income totaled $2.6 billion, or 61 cents per share. Revenue was $33.1 billion.

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