福特汽車 (F) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the first-quarter fixed income conference call.

My name is Tahitia and I will be your operator for today.

At this time, all participants are in listen-only mode.

Later, we will conduct a question-and-answer session.

(Operator Instructions).

As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Ms. Molly Tripp, Fixed Income Investor Relations Manager.

Please proceed.

Thank you, Tahitia and good morning, ladies and gentlemen.

Welcome to all of you who are joining us either by phone or webcast.

On behalf of the entire Ford management team, I would like to thank you for spending time with us this morning.

With me today are Mike Seneski, Ford Credit Chief Financial Officer, and Neil Schloss, Ford Vice President and Treasurer and Stuart Rowley, Ford Vice President and Controller.

We also have some other members of management who are joining us for the call, including Marion Harris, Assistant Treasurer; Paul Andonian, Director of Global Accounting; and George Sharp, Executive Director, Investor Relations.

Before we begin, I would like to review a few items.

A copy of this morning's earnings release and the slides we will be using today have been posted on Ford's investor and media websites for your reference.

The financial results discussed today are presented on a preliminary basis.

Final data will be included in our Form 10-Q that will be filed early next month.

Additionally, the financial results presented here are on a GAAP basis and in some cases on a non-GAAP basis.

Any non-GAAP financial measures discussed on the call are reconciled with the US GAAP equivalent as part of the appendix to the slide deck.

New for this quarter, we have also included a few slides on Ford Credit Europe in the appendix for your reference.

Additional information on FCE can be found at www.fcebank.com in the Investor section.

Finally, today's presentation includes some forward-looking statements about our expectation for Ford's future performance.

Actual results could differ materially from those suggested by our comments here.

The most significant factors that could affect future results are summarized at the end of this presentation.

These risk factors and other key information are detailed in our various SEC filings.

With that, I would like to turn the call over to Ford Credit CFO, Mike Seneski.

Mike?

Thanks, Molly.

Consistent with prior quarters, today's presentation will cover Ford Credit's profit and credit loss performance, Ford Credit funding and liquidity highlights, automotive cash, debt and liquidity and then we will wrap things up with a summary of the quarter.

Let's look at Ford Credit's operating highlights on slide 1. Ford Credit had another strong quarter with pretax profit of $507 million and net income of $364 million.

Managed receivables were $94 billion at the end of the first quarter, up $3 billion from year-end 2012 primarily explained by increases in wholesale receivables and net investment in operating leases.

First-quarter charge-offs were $45 million, up $10 million from the prior year.

The first-quarter loss to receivables ratio was 20 basis points, up 3 basis points from a year ago.

At March 31, the allowance for credit losses or reserves was $389 million or 41 basis points of receivables.

Managed leverage was 8.4 to 1 at March 31, 2013 compared with 8.3 to 1 at December 31, 2012.

At the end of the first quarter, our equity was $9.8 billion.

Slide 2 shows the $55 million increase in first-quarter pretax results compared with a year ago by causal factor.

The results are primarily explained by higher receivables and favorable residual performance offset partially by lower credit loss reserve reduction.

As shown in the memo, Ford Credit's pretax profit increased by $93 million compared with the fourth quarter.

Ford Credit continues to expect 2013 pretax profits to be about equal to 2012 -- year-end managed receivables of $95 billion to $105 billion and distributions of about $200 million.

Slide 3 shows our quarterly trends of charge-offs, loss to receivables ratio and credit loss reserves.

Our first-quarter credit losses continued to be near historically low levels.

Year-over-year charge-offs were up $10 million reflecting lower recoveries and higher severity in the United States.

Quarter-over-quarter charge-offs were down about $4 million reflecting higher recoveries.

The loss to receivables ratio was up 3 basis points versus the prior year.

The credit loss reserve was $389 million, down $90 million from a year ago and down $19 million from the fourth quarter reflecting the continuation of the historically low losses.

Slide 4 shows the primary drivers of credit losses in the US retail and lease business, which comprises approximately 75% of our worldwide consumer portfolio.

Over 60-day delinquencies were up 5 basis points from the same period a year ago, down 1 basis point from the past two quarters and still below our historical average.

Repossessions in the first quarter were 8000 units, or 1.29% of average accounts outstanding, down 25 basis points from the same period a year ago.

Severity was $7200 in the first quarter, about flat from the fourth quarter and up $500 from the same period a year ago, primarily reflecting lower relative auction value.

US year-over-year and quarter-over-quarter credit loss performance is consistent with the worldwide results discussed on the prior slide.

Slide 5 shows the US Ford and Lincoln lease residual performance.

Lease return volumes in the first quarter were 7000 units higher than the same period last year, reflecting primarily higher lease placements in 2010 and '11.

The first-quarter lease return rate was 69%, up 3 percentage points compared with the same period last year, reflecting a higher mix of 24-month contracts, which typically have higher return rates than longer-term contracts.

In the first quarter, despite higher content on vehicles returned, our 24 and 36-month average auction values have remained pretty flat when compared to both the year ago and the prior quarter.

Our worldwide net investment in operating leases was $15.9 billion at the end of the first quarter, up $1.2 billion from year-end 2012.

With that, I will turn it over to Neil.

Thanks, Mike.

Turning to slide 6, we are on track to achieve our 2013 funding plan.

In the first quarter, we completed about $8 billion of funding in the public term market.

Our public term issuance includes about $3 billion of unsecured debt transactions in the US and Europe and about $5 billion of public asset-backed transactions in the US and Canada.

Our asset-backed transactions included issuances in all three major asset classes and our first seven-year term wholesale transaction.

We ended the quarter with $31 billion of committed capacity, about flat when compared to year-end 2012.

Our funding strategy remains focused on diversification and we plan to continue accessing a variety of markets, channels and investors.

We remain focused on maintaining a strong investment-grade balance sheet.

Slide 7 shows the trends in funding of our managed receivables.

At the end of the first quarter, managed receivables were $94 billion.

We ended the quarter with about $10 billion in cash and securitized funding was 46% of managed receivables.

Our projections for year-end managed receivables at $95 billion to $105 billion and securitized funding as a percent of managed receivables at 42% to 47% are unchanged from prior guidance.

We expect this percentage to continue to decline over time.

Slide 8 shows our 2013 global public term funding plan for Ford Credit, excluding our short-term funding programs.

This includes our issuance plan for Ford Credit Europe, which is detailed in the appendix.

As I mentioned earlier, we have completed $8 billion of public term funding in the US, Canada and Europe.

We project full-year global public term funding in the range of $17 billion to $24 billion consisting of $7 billion to $10 billion of unsecured debt and $10 billion to $14 billion of public securitizations, all unchanged from prior guidance.

Turning to slide 9, our liquidity remains strong at over $20 billion, up slightly from year-end.

Ford Credit sources of liquidity include cash, unsecured credit facilities, FCAR asset-backed commercial paper lines and other asset-backed bank capacity.

As of March 31, we had $40.8 billion of cash and committed liquidity sources, down $1.6 billion from year-end, primarily reflecting seasonality in first-quarter debt maturities.

Utilization of liquidity totaled $19.1 billion and we ended the quarter with gross liquidity of $21.7 billion.

Capacity in excess of eligible receivables was $1.5 billion, same as year-end.

We are focused on maintaining liquidity levels to meet our business and funding requirements through economic cycles.

Now we will summarize our automotive sector cash and debt position at the end of the first quarter, which is captured on slide 10.

Automotive debt at the end of the quarter was $16 billion, $1.7 billion higher than year-end 2012.

The increase is driven primarily by $2 billion of debt issuance and the consolidation of $500 million debt from our Romanian operation, offset partially by the redemption of about $600 million of higher-cost callable debt and other debt repayments.

Proceeds from the debt issuance that were not used for reduction of higher-cost debt are being used for pension contributions, which will reduce our pension expense by a greater amount than the interest incurred on the incremental debt.

Net cash at the end of the quarter stood at $8.2 billion, $1.8 billion lower than year-end 2012.

Automotive liquidity at the end of the quarter was $34.5 billion, equal to year-end 2012.

Now let's close with a summary of the first quarter.

The Company earned an operating profit of $2.1 billion and net income of $1.6 billion.

Automotive operating-related cash flow was positive as well and we ended the quarter with strong liquidity.

North America achieved record quarterly performance for pretax profits since at least 2000.

Asia-Pacific earned a small profit while Europe and South America incurred losses as anticipated.

We raised $2 billion of 30-year debt and contributed $1.8 billion to our worldwide funded pension plans, which included $1.2 billion of discretionary payments to our US funded plans.

We ended the quarter with automotive net cash at about $8 billion and liquidity was about $35 billion.

Ford Credit had another strong quarter with pretax profit of $507 million.

Managed receivables were $94 billion at the end of the quarter, up $3 billion from year-end.

Credit losses continued near historic lows.

Year-to-date, Ford Credit has completed about $8 billion of public term funding and is on track to complete our full-year funding plan.

Ford Credit's liquidity was about $20 billion for the quarter, which is in addition to Ford's automotive liquidity of about $35 billion.

And with that, I will turn it back to Molly to start the Q&A session.

Thanks Neil.

With that, we will start the question-and-answer session.

Tahitia, can we please have the first question?

(Operator Instructions).

Doug Karson, Bank of America-Merrill Lynch.

Great, guys, thanks.

I have one or two quick questions here.

I guess first is the capacity improvements in Europe.

I know you talked briefly about it on the previous call, but could you just refresh me on the timing of when those plants are going to be taken down and when we will start seeing some of the capacity improvements in Europe take hold?

I am thinking it is the second half of this year.

Yes, thanks for the question.

This is Stuart here.

We announced our plan in October of last year and we announced that we were closing three facilities in Europe, two facilities in the UK, our assembly plant in Southampton and our Dagenham stamping and tooling operations.

Those two facilities will close mid of this year and then the third facility is our Genk assembly plant in Belgium and that facility will close subject to completion of our consultation process at the end of 2014.

Combined, the closure of those facilities would reduce our installed capacity by about 18% or 350,000 units.

And that plan that we communicated in October remains our plan and is on track.

Does that get your capacity utilization like up in the 80%s then after that?

We haven't provided a projection of capacity.

We did share last year that if that capacity had not been in place, we provided some guidance of what our utilization would have been in 2012, and I would have to refer back to those numbers.

But, of course, future utilization will depend upon the number of other factors, including demand at any given point in time.

Sure.

That makes sense.

And then I will just turn it over to Ford Credit and some of the balance sheet items I was looking at.

It looked like Ford commented that there was a $300 million dividend paid by Ford Credit on one of their slides.

And is that pretty much what Ford Credit is expected to dividend up to Ford this year?

Where are we on that kind of cadence?

Hey, Doug, it's Mike.

No, the distribution or the $300 million that Ford showed was actually a tax payment related to settlement of 2008 and 2009 issues.

We paid a very nominal dividend in the first quarter.

Our plan for this year is $200 million and that's really weighted towards the back end of the year.

Okay, that makes sense because it didn't add up to me.

Finally, on debt issuance, I know it is hard to kind of comment much on this, but I mean internally it looks like the 30-year was pretty successful, again a pretty low cost of capital to fund to that pension.

The pension is still kind of largely underfunded.

I mean is there any more thoughts about putting more bonds on the balance sheet because you have some capacity to take some pension funding down?

And then on the Ford Credit side, I know you have got quite a bit of unsecured financing still to do.

How does the market look to you right now?

Is this something that maybe you can share a little bit of timing on just when some of these financings could happen?

Yes, Doug, this is Neil and thanks for both the questions and what was said this morning and is our strategy for both debt and pension is to both bring those down over time.

We have externally said that our long-term debt target by mid-decade is to get down to about $10 billion and to get our funded plans fully funded.

And so I think both of those we are on plan for and so the debt raise we did in January took advantage of a very good market, as well as low rates, to accelerate some of the pension contributions that we were making.

But when we think about sort of debt and leverage, we think about those two together and so our plan and our strategy uses cash as we go forward to continue to take actions to reduce debt and reduce the pension unfunded status.

And then on the credit capacity, we had a very good first quarter from the standpoint of our issuance of almost $3 billion of unsecured, both here and in Europe and so the balance of the year we say is $7 billion to $10 billion.

I think you can pretty much divide them by quarters from a standpoint of timing.

Obviously which market we issue and what maturity we issue will be somewhat dependent upon the market at that point in time.

Although I can tell you that, so far, the back half of last year, plus the first quarter, has been very accommodative to corporate issuers and obviously getting our investment grade back last year has helped a lot.

Our spreads continue to improve.

Market access is there, so we don't see any issue from a standpoint of raising the remaining part of our funding plan.

Right, that's helpful.

And last question from me and then I will turn it over, your dividend yield now is 3%, which is higher than it has been in a long time.

How does that kind of dovetail with you taking debt down and having the pension balance fall and potentially growing the dividend?

I'm not putting words in your mouth about growing the dividend, but now that you have a dividend there, is it something that you guys would want to expand also?

I think what we have said in our overall capital strategy is to really balance a lot of different variables -- dividend, debt repayments, pension contributions -- we did announce as part of a small stock repurchase program consistent with what we did a year ago for new shares as part of comp.

So it really is a balanced approach as well as continue to fund the growth of the business in all the strategies around the product and market side.

Great.

That makes sense.

Well, thanks for answering the questions.

I will pass over the baton.

Thanks, Doug.

Eric Selle, JPMorgan.

Hey, thanks for taking my question and congrats on the Focus winning the global auto sales leader.

I am very happy to contribute one of those sales and am a walking advertisement for you guys every day.

So congrats on that.

It is a huge victory that I think you guys could do more and more advertising behind it.

Getting back to Doug's question on Europe, I mean basically you guys are going to go from a $2 billion loss to breakeven over two years.

If you look at IHS, they are looking for about 4% growth per year and I guess that gives you about 100,000 more units of sales if they are right.

If you compartmentalize the cost savings from shutting down the plants, potential volume growth and then the new product introductions, I mean how can you help us kind of gradually get to that $2 billion lift?

And I guess the cost side is a side that maybe we could get some help on.

I mean how many workers are going to be out?

Is that the main part of the cost savings from shutting down those facilities or is it just the capacity utilization coming in?

Eric, thank you for your question.

Also thank you for contributing to our sales results.

I would refer you back again to our transformation strategy that we communicated for Europe back in October.

And we said then that our return to profitability in Europe by mid-decade is supported by a number of factors.

You rightfully point out that we do anticipate some recovery in industry volume, although not dramatic.

I think we, like other industry observers, think this will be a slow economic and industry recovery.

Our return to profitability will also be supported by our new product investments coming onstream.

In 2013, we have a negative impact because we chose to defer the introduction of our new Mondeo, which is the Fusion here in North America.

We would have launched that in 2013.

That will not now come onstream until late 2014 and is our largest passenger vehicle, that product and the associated S-MAX and Galaxy are our key contributors.

So we will have those back in the market in '15, as well as having turned over our entire commercial vehicle portfolio, which is also a key source of profits in Europe.

So our product offer will be renewed and expanded by the 2015 mid-decade point and that will support us both in terms of modest share gains, but also in terms of the margins that we will get on that fresher product lineup.

And then as you point out, also cost, where the restructuring actions we are taking, they have a negative impact on our results this year as we accelerate the depreciation of the facilities that we are going to close.

Clearly, some of that is complete this year, but some more will be in our results in 2014, but by mid-decade, that cost will be behind us.

That is an order of magnitude about $0.5 billion negative impact on our results this year that we won't have in the future.

And then, finally, we are continuing to invest to grow in the parts of the European region that are growth markets.

Eastern Europe, but specifically in Russia, our joint venture with Sollers that we launched in late 2011 and in Turkey where we have a very strong joint venture in Ford Otosan and we are market leaders.

So it is going to be a number of factors that bring us back to profitability and we are really pleased with the progress we are seeing in the first quarter and that we are on track for that plan.

That's great color.

I really appreciate that.

And then, Mike, we have seen a modest amount of delinquencies rise in your portfolio and you guys are obviously one of the cleanest portfolios out there, which is why we love you guys.

But I know that the finco space is getting more competitive.

You had a pretty heavy asset growth in the first quarter.

Leases obviously understood, but some due to wholesale and I guess they're twofold.

In wholesale, is that inventory growth or are you guys in fact taking share?

And then overall, are you guys having a hard time growing that portfolio while keeping your underwriting standards tight?

I have been down to Nashville; I know you guys aren't going to stretch deep, deep, deep like some of your competitors, but, in that regard, are you guys going to give up some business as the rest of the market grows?

Okay, Eric.

I will try and take those one at a time.

First, on wholesale growth, it is really consistent with Ford's days supply and as you know, when you look at Ford levels of days supply in the US, they are at 62 days.

In Europe, it is 43 days.

So our growth just reflects what is going on in the US inventories.

Our share, both in Europe and the US, is always pretty stable and the US, it's plus or minus a couple of points.

But the wholesale growth is because of the strength we are seeing on the auto side.

On the retail side of the business, as you know, our underwriting standards don't change.

We are very consistent in that and we are seeing growth, we are seeing it -- primarily our retail portfolio is pretty flat, so the new originations are offsetting the liquidations and in lease, we are seeing a growth in the lease industry.

Competition is always out there, but we work very closely with the Motor Company to go to market and we feel very comfortable with the growth we have gotten so far this year and our guidance of ending up at somewhere between $95 billion and $105 billion.

I appreciate that.

I appreciate that.

And then just finally some housekeeping stuff.

Looking at the cash flow statement, I don't know if you have given specific guidance; I guess you will tell me that after I ask the question.

But CapEx seemed a little bit light in the first quarter versus I guess the $7 billion estimate.

I don't know if that is guidance and then the pension contributions seemed a little bit higher than the $5 billion we expected.

Are those numbers we should cuff to or -- I don't know if you've guided to those numbers.

I think the pension number you have, but are those still kind of good goalposts for us?

Eric, maybe I will take part of that and ask Neil to cover the pensions question.

So in terms of our operating-related cash flow, we've guided that we expect it to be higher than 2012 and that guidance remains.

In terms of capital spending, we had $1.5 billion in the first quarter.

Our guidance is for about $7 billion for the year and again, that remains our guidance.

If you look at it -- if you take that $1.5 billion times like 4, that's $6 billion, but if you look at first quarter last year, we were up about $400 million year-on-year for the quarter and we do see some seasonality in our CapEx and some of the physicals of what's in our plan there.

So we think that is still good at $7 billion.

Neil?

Yes, and on the pensions side, we have provided guidance for the full year of pension contributions to the funded plans of about $5 billion.

First quarter was heavier and that really reflected, Eric, the debt raise we did in January for automotive.

So a lot of the proceeds from that wasn't used to call more expensive debt; it was used to accelerate the contributions to the pension fund.

That's right.

That's right.

Thank you for reminding me of that.

It seems like many moons ago, but it has been a busy year.

And then just one final one is I know other is traditionally an outflow in the first quarter.

Can you remind me why that is and what is the big number on that?

Yes, are you talking about the other timing differences?

Yes, sir.

Yes, sir.

Yes, I think that just blows along with when vehicles actually ship from plants and we actually get paid for by Ford Credit on the sense of the dealers have better wholesale.

And so in the first quarter, we shipped several at the end that did not get funded by credit.

So there is a negative cash flow associated with that because it is in the profits.

Great.

I remember that was kind of an annual thing, but my memory evaded me.

So I appreciate that.

So I appreciate your time today.

Solid quarter and look forward to doing it again next quarter.

(Operator Instructions).

Brian Jacoby, Goldman Sachs.

Hey, guys, good morning.

You guys pretty much addressed everything.

I just have one question; I will keep it to one.

Just S&P still has you guys at BB and they seem to be focused on more so the industry in Europe and when that will stabilize.

And you guys have done a great job and you are announcing plans in Europe and executing on them.

And obviously it is a tough market, but your inventory levels are coming down and seem pretty good.

But where do you guys think about the industry broadly in Europe?

I mean I am not asking you to comment specifically on competitors themselves, but how do you guys feel about industry inventory levels in Europe?

And obviously there is some countries that really it is difficult to cut capacity, but do you think directionally we are moving in the right way industrywise where things could begin to maybe stabilize later this year or any type of color on that would be helpful because clearly S&P seems to be holding that out as one of the key factors why they haven't brought you up to investment-grade yet?

Brian, this is Stuart.

In terms of the inventory levels, we have -- as you know, we have taken significant action through 2012 to reduce our inventory level and they are at about the level that we want them to be.

In addition to the headline numbers, we have also taken down the levels of near-new inventories in our dealers, what we refer to as self-registered vehicles and that is another part of our strategy to improve our brand and the quality of our sales.

In terms of what it looks like across the industry, we really don't have the quality of industrywide data that you see here in the US market.

It is hard to comment with any sort of certainty about what is going on across the industry.

So I'd actually hold back any comments on that other than we are focused on doing the right thing for our business.

In terms of the industry sales rate, we guided in January that we expected to be in the low end of the $13 million to $14 million range and we reflected that in our call again today.

That is where we have seen the sales rate come in during the first quarter, as well as seeing the sales rate trend in April.

There's a few more days to go yet and our projection is pretty flat through the year.

We, at the moment, expect to see '14 increase from that level.

So we'd characterize the situation in Europe as stabilizing.

We are observing -- if you look at run rates in terms of the peripheral markets, including Spain, Italy, Greece, Portugal, Ireland where most of the falloff came, we are seeing the rolling averages there flatten out.

What we haven't yet seen is any sign of an increase off that stabilized low level and we are watching for that as other industry observers are.

But in terms of our performance, we are very pleased with the work that the team in Europe is doing in terms of focusing on our business, getting the inventories down, the quality of our sales and our net pricing performance in what remains a very difficult industry.

Okay, that is great color.

Thank you.

We have no more questions in the queue.

I would now like to turn the conference back over to Ms. Tripp for any closing remarks.

Thank you.

With that, I would like to conclude today's call.

Thanks to everyone for joining us.

Ladies and gentlemen, that concludes today's conference.

Thank you for your participation.

You may now disconnect.

Have a great day.