福特汽車 (F) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter fixed income conference call hosted by Steve Dahle, Manager, Fixed Income, Investor Relations.

My name is Matthew and I am your operator today.

During the presentation, your lines remain on listen-only.

(Operator Instructions).

I must advise all parties this conference is being recorded for replay purposes.

And now, I'd like to hand over to Steve.

Please go ahead, Steve.

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

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

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

With me this morning are Michael Seneski, Ford Credit Chief Financial Officer; 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 today, 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 press release and the fixed income slides that we will be using today have been posted on Ford Motor Company's investor and media websites for your reference.

The final results discussed herein are presented on a preliminary basis.

Final data will be included in our Form 10-K.

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 in this call are reconciled to the US GAAP equivalent as part of the appendix to the slide deck.

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

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

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

These risk factors and other key information are detailed in our SEC filings, including our annual, quarterly and current reports to the SEC.

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

Michael?

Thanks, Steve.

I'd like to apologize in advance for some coughs and sniffles as I'm fighting a cold and losing badly I might add.

Today's presentation will cover Ford Credit's profit, credit loss performance, funding and liquidity highlights, including our outlook for 2014; automotive cash, debt and liquidity, an update on our pension; and then we will wrap things up with a summary of the year.

Let's turn to Ford Credit's operating highlights on slide 1. Ford Credit remains key to Ford's global growth strategy, providing world-class dealer and customer financial services, maintaining a strong balance sheet and producing solid profits and distributions.

Ford Credit had another solid year with pre-tax profit of $1.8 billion, and $368 million for the fourth quarter.

Net income for the year was $1.5 billion, and $568 million in the fourth quarter.

The fourth-quarter net income reflects a reduction in our tax liability, primarily explained by favorable one-tax items recorded in the quarter.

Managed receivables were $103 billion at the end of the year, up $11 billion from 2012 and slightly higher than prior guidance.

Full-year charge-offs were $176 million, up $40 million from 2012.

Fourth-quarter charge-offs were $52 million, up $3 million from a year ago.

The full-year loss receivables ratio is 18 basis points, up 2 basis points from a year ago and our second lowest full-year result on record, with 2012 being the lowest.

The ratio is 20 basis points for the fourth quarter.

At December 31, the allowance for credit losses, or reserve, was $380 million, or 37 basis points for receivables.

Ford Credit paid distributions of $445 million to our parent during 2013.

Managed leverage was 8.5 to 1 at December 31 compared to 8.3 to 1 at December 31, 2012.

At year-end, our equity was $10.6 billion.

Slide 2 shows the $46 million decrease in fourth-quarter pre-tax profit compared with a year ago.

The decrease primarily reflects unfavorable residual performance related to lower auction values and lower financing margin, both in North America, as well as credit loss reserve changes; higher volume was a partial offset.

Ford Credit's higher volume, primarily in North America, was driven by an increase in leasing reflecting changes in Ford's marketing programs, as well as higher non-consumer finance receivables due to higher dealer stocks.

As shown in the memo, our pre-tax profit was $59 million lower than the third quarter.

Slide 3 provides an explanation of the change in Ford Credit's full-year profit compared to 2012.

The improvement of $59 million is more than explained by higher volume, primarily in North America, driven by an increase in leasing reflecting changes in Ford's marketing programs, as well as higher non-consumer finance receivables due to higher dealer stocks.

Partial offsets are higher credit losses due to lower credit loss reserve reductions in all geographic segments and unfavorable residual performance related to lower-than-expected auction values in North America.

For full-year 2014, Ford Credit expects full-year pre-tax profit about equal to 2013.

Profit from growth in receivables should offset the continued normalization of credit losses, the continued runoff of higher-yielding assets, and the impact of Ford Credit's strategy to increase its percentage of unsecured debt as we continue to build a stronger investment-grade company.

Managed receivables at year-end are expected to be about $110 billion, managed leverage will continue in the range of 8 to 9 to 1 and distributions to our parent of about $250 million.

For the next several slides, we will be discussing annual key metrics as they relate to asset performance.

The normal quarterly data slides have been included for your reference in the appendix.

Slide 4 shows the annual credit loss metrics for our worldwide portfolio for the past five years.

Our charge-offs were up from our record low in 2012, primarily reflecting higher severity and lower recoveries in the North America segment, and higher losses in the international segment.

The loss to receivables ratio is up 2 basis points from 2012 and, as I mentioned earlier, is our second lowest on record.

Reserves and reserves as a percent of end-of-period receivables were both lower than a year ago reflecting the continuation of lower charge-offs.

Fourth-quarter charge-offs, shown in the appendix, were up slightly from fourth quarter 2012 and third quarter 2013, primarily reflecting higher severity in North America.

Slide 5 shows the annual trends of our US Ford and Lincoln retail and lease business, which comprises about 72% of our worldwide consumer portfolio.

The upper left box shows the stability of our average placement FICO reflecting our commitment to maintaining consistent underwriting standards through all business cycles.

The rest of the metrics on the page give you a sense of how the portfolio is performing.

Over 60-day delinquencies are consistent with prior years.

Our repossession ratio of 1.18% is our lowest on record.

Severity of $7,600 in 2013 is up $700 from 2012, primarily reflecting lower auction values and is consistent with the decline in the 2013 average Manheim Index.

Charge-offs and the loss receivables ratio increased from a year ago, primarily reflecting lower severity and lower recoveries.

Fourth-quarter charge-offs, shown in the appendix, were up from fourth quarter 2012 and third quarter 2013, primarily reflecting higher severity.

Slide 6 shows the annual trends of lease residual performance for our U.S. Ford and Lincoln brands over the past five years.

Lease return volumes in 2013 were up significantly from 2012, reflecting primarily the higher lease placements in 2011 relative to prior years.

Our 2013 lease return rate was 71%, up 9 percentage points compared with 2012 reflecting lower auction values.

In 2013, our auction values for both 24 and 36-month vehicles declined, consistent with industry trends.

Our worldwide net investment in operating leases was $18.3 billion at the end of 2013, up from $13.6 billion in 2012.

As shown in the appendix, fourth-quarter of 2013 return volume increased from fourth quarter 2012 and third quarter 2013.

Fourth-quarter 2013 auction values were lower than the fourth quarter 2012 reflecting primarily the non-recurrence of Hurricane Sandy's effect.

With that, I will turn it over to Neil.

Thanks, Mike.

Turning to slide 7, we will walk through our full-year 2013 funding highlights.

With the upgrade from S&P in September, we are now rated investment-grade by four major rating agencies.

In addition, all four have us on stable outlook.

This is a key proof point of the continued progress of the ONE Ford plan.

In 2013 we issued $25 billion of public term funding, which included about $11 billion of unsecured debt.

In the fourth quarter, we issued $7 billion of which $3 billion was unsecured.

We also established a new two-year syndicated committed asset-backed liquidity facility that, together with growth and other private asset-backed capacity, will replace the FCAR asset-backed commercial paper program.

We ended the year with about $35 billion of committed capacity and net liquidity was $21 billion.

Our funding strategy remained 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 8 shows the trends in funding of our managed receivables.

At the end of 2013, managed receivables were $103 billion and we ended the year with about $11 billion in cash.

Securitized funding was 44% of managed receivables, down from about 47% at year-end 2012, reflecting a greater mix of unsecured debt.

We are projecting 2014 year-end managed receivables at about $110 billion, and securitized funding as a percent of managed receivables in the range of 38% to 42%.

This percentage will continue to decline going forward.

Slide 9 shows our final 2013 and projected 2014 public funding plans for Ford Credit, which excludes our short-term funding programs.

For 2014, we project full-year public term funding in the range of $21 to $27 billion, consisting of $9 to $12 billion of unsecured debt and $12 to $15 billion of public securitizations.

Over the past few years, we have been successful issuing increasing amounts of unsecured long-term debt.

Therefore, as our balance sheet grows our funding needs will grow at a slower rate.

So, even though our assets are projected to grow this year, the amount of our public term funding plan is flat compared to 2013.

Turning to slide 10, we highlight Ford Credit's 2013 year-end liquidity.

Our liquidity remains strong at $21.4 billion, down $1.2 billion from last quarter, reflecting growth in fourth-quarter receivables, and up $1.7 billion from a year ago.

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

As of December 31, we had $45.3 billion of cash and committed liquidity sources, up $1.7 billion from prior quarter.

Utilization of our liquidity totaled $22.8 billion and we ended the quarter with gross liquidity of $22.5 billion.

Capacity in excess of eligible receivables was $1.1 billion.

As previously noted, we will transition away from our FCAR program in 2014.

We ended the year with $3.3 billion of FCAR commercial paper and our plan is to completely wind down the program by second quarter 2014.

Included in our Conduit and Bank ABS Sources is a new two-year syndicated committed asset-backed facility.

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

Slide 11 shows that automotive debt at the end of the quarter was $15.7 billion, $100 million lower than the third quarter.

We ended the year with net cash of $9.1 billion, $900 million lower than a year ago, and automotive liquidity was $36.2 billion, $1.7 billion higher than a year ago.

Slide 12 provides an annual update on our global pension plans.

Worldwide pension expense in 2013, excluding special items, was $1.6 billion, $400 million higher than 2012.

Special item charges were about $800 million, including about $600 million associated with our US salaried voluntary lump sum program, which has now concluded.

In 2013, we made $5 billion in cash contributions to our worldwide funded pension plans, up $1.6 billion compared with a year ago.

In 2014, cash contributions to our funded plans are expected to be $1.5 billion globally, most of which is mandatory.

This is $3.5 billion lower than last year reflecting our improved funded status.

Worldwide, our pension plans were underfunded by $9 billion at the end of 2013, about $6 billion of which is associated with our unfunded plans.

In total, this represents an improvement of nearly $10 billion compared to a year ago, driven primarily by higher discount rates and cash contributions.

Consistent with our de-risking strategy, we continue to increase the mix of fixed income assets with the objective of reducing funded status volatility.

The fixed income mix in our US plans at year-end 2013 was 70%, up from 55% at year-end 2012.

Asset returns in 2013 for the US plans were 3.7% reflecting strong growth asset returns, offset partially by fixed income losses as interest rates rose.

For 2014, our expected long-term return assumption for the US is 6.89%, down about 50 basis points from a year ago reflecting the higher mix of fixed income assets.

Now let's close with a summary of 2013.

The Company had a solid fourth quarter, achieving our 18th consecutive profitable quarter.

Automotive operating-related cash flow was positive, and liquidity was strong.

Among the business units, North America delivered a strong profit; Asia-Pacific earned a record profit for the fourth quarter; South America incurred a loss as expected; and Europe reduced its loss compared with last year.

For the full year, the Company's pretax operating profit was among the best in our history and automotive-related cash flow was a record.

These full-year results reflect an automotive sector operating profit that was the highest in more than a decade, with record profits in North America and Asia-Pacific Africa, an about breakeven result in South America and a lower loss in Europe than last year.

At year-end, automotive gross cash was $24.8 billion and liquidity was $36.2 billion.

Ford Credit had another solid year with pre-tax profits of $1.8 billion and net income of $1.5 billion.

Growth continues, with managed receivables of $103 billion at year-end, up $11 billion from 2012.

The full-year loss to receivable ratio was 18 basis points, our second-lowest full-year result on record.

We completed our 2013 funding plan, including $25 billion of public term funding and maintained a strong net liquidity position at Ford Credit of over $21 billion.

And with that, I'll turn it to Steve to begin the Q&A session.

Thank you, Neil and with that, we'll begin the question-and-answer session.

Matthew, may we please have the first question?

Thank you, Steve.

(Operator Instructions).

Doug Karson, Bank of America Merrill Lynch.

Great, guys.

Thank you.

Can you hear me all right?

Yes.

Good morning.

Good morning.

So my first question relates to the operating cash flow.

You may have kind of gone over some of the detail, but I was hoping to get a little more color.

In 2013, it was $6.1 billion and the outlook calls for substantially lower.

I know we have two elements -- higher CapEx by about $1 billion and total Company profits may be lower by about $1 billion.

We are trying to kind of floor what substantially lower means.

Is there something else in there in working capital or some other timing differences?

We're just trying to model out 2014 cash.

Yes, Doug, it's Stuart Rowley here and thanks for the question.

Just in terms of the year-to-year, I point out to you that we describe this year's outlook as substantially higher than last year, which was something over $3 billion.

So I think that provides you some texture.

The lower profits, as you point out, higher capital spending.

We've guided to about $7.5 billion, 2013 was $6.6 billion.

The other piece is that, particularly in the timing differences, which were strongly favorable in 2013, we would expect some of those to reverse in 2014.

So I think those are the major elements.

Great, that's helpful.

And then I'll turn over to a big-picture question on Europe.

I know you had discussed in Europe and a turnaround for over a year now, but, as I look at slide 28, it talks about incoming data in the economic setting with growth 1% up in euro and 2% in the UK and we try to foot to your mid-decade breakeven target.

I'm looking at different elements of how you will get there, volume and mix and pricing versus costs.

If you were to kind of direct us towards one area that will drive most of the improvement, because you are down about $1.6 billion I think in 2013, there is quite a lot to go.

Can you help us kind think about how to frame that?

Yes, I think there is a number of pieces that will come in.

The first piece is in the $1.6 billion that you referred to for 2013, there is about $0.5 billion of restructuring costs, similar to that we'll have about $400 million in 2014.

Those costs won't be there in 2015.

In addition, at the end of 2014, we close the Genk facility, so we will start to recognize the benefit of the lower cost as a result of that action as we get into 2015.

The other piece that is investment in products.

We have communicated the 25 products in Europe and a big element of those are commercial vehicles.

We highlighted the improved commercial vehicle share in 2013, but we are now just launching our large Transit and it is built in our Ford Otosan joint venture.

We are launching that in the early part of 2014.

That is obviously a very important part of our business in Europe.

And then we are also launching a smaller commercial vehicle and then, later in the year, we will be launching the Mondeo, which was going to be built at Genk and now will be built at the Valencia facility, and that's obviously a very important passenger car for us that we delayed as a result of our restructuring actions.

So we have a positive impact from some of the products, but some important ones.

And then, finally, we do expect the industry and the economies to recover albeit at a slow pace, but that will also be favorable to us.

Finally, I'd say although our stock changes in 2013 year-to-year were negative, we did still reduce stocks in 2013 calendar year and our stocks are very much where we want them to be now.

So we won't continue to experience negative effects of stock changes.

Great.

That was very helpful.

I appreciate the walk-through.

That's it for me.

Thanks, Doug.

Brian Jacoby, Goldman Sachs.

Thanks, guys.

Yes, just two questions.

One, just regarding what was kind of talked about on the earnings call and just some clarification on the F-Series launch.

I mean is the read-through that you are obviously going to try to build out some of the older outgoing model in conjunction with taking down one of the plants and launching the new -- I mean it sounds like you are saying that you feel like there will be some periods there where you are going to overproduce a little bit in anticipation of the changeover and we may get some months in there of pretty high inventory levels because I mean one of your crosstown rivals launched a truck a year ago and they had some months there where their inventories got pretty high.

So I just want to clarify to make sure that I am understanding that correctly.

That is the first question and then maybe I will follow-up with the second.

Thanks, Brian.

I think just to clarify, I mean you may see some month-to-month variances on inventory, that will depend when we time the shutdowns to changeover.

The point I'd make is we are and will build every current model F-Series truck that we can build.

The only reasons we will have any downtime in our plants is to facilitate the changeover to the new truck.

We have a very, we think, robust plan that we are very satisfied with to manage the changeover and the team here in North America has done that on a number of occasions.

So because of the downtime for the changeover, you will see inventories move around period-to-period and our production of F-Series in 2014 will be lower than in 2013, because of the 13 weeks that we talked about in the call.

Okay, great.

And then my second question was just around off-lease vehicles and there just continues to be more and more chatter in the various publications out there about how there is a slew of off-lease vehicles coming and that it is going to have potentially negative ramifications for pricing just on new vehicles potentially and just wanted to get your thoughts on that.

I mean you guys have covered a lot of this in the past and you guys seem to have been very much on top of it, but maybe if you could just give us some color on how you are thinking about that.

And then I had a housekeeping question regarding you're talking about net interest expense about flat year-over-year, but I'm just curious why that number doesn't say down slightly year-over-year given that you are going to be reducing some DOE debt and [sub] along with the convert.

Okay, Brian, I will take the first one, as we've said before, when we set future residual values, we are not counting on prices today.

We have models that are trying to take into account the growth in the industry, what is happening with our brand, and our expectation for what prices are going to be a couple years out.

With that, we are seeing a little bit of growth in average amount financed, which is consistent with the net pricing growth that we have seeing.

But overall, our outlook going forward is pretty benign, assuming auction values continue to behave as they are behaving.

This is Neil.

On the net interest being flat, you are correct the DOE pays off about $150 million a quarter.

That comes off at a very low interest rate relative to the rest of the portfolio.

We don't see a lot of debt changes or maturities in 2014.

A lot of our maturities are in 2015 and also the convert -- we could advance the conversion at the end of November and so there isn't really much of a full-year benefit associated with that.

Right.

And then the cost on that, Neil, they said what, about 1.6?

It varies depending on the market value , which is what we would actually use to settle if we chose cash, and varies between $1.6 and $1.7 billion depending on where the stock prices and there would be an averaging period on that event.

Okay, great.

Thank you.

And you will notice in one of the appendices to the earnings deck that, in our fully diluted earnings per share calculation, it is worth about 98 million shares.

So if we were to use cash, it is essentially a share buyback for 100 million shares.

Thanks.

(Operator Instructions).

Eric Selle, JPMorgan.

Hey, good morning and Mike, I hope you feel better and Neil, I hope it's not contagious.

I hope it's not contagious through the phone either.

Anyways, looking at slide 6, just dovetailing off of Jacoby's question, have you changed any of your residual assumptions year-over-year to drive that spike in return rate?

And then secondly, is that rise in return rate the reason why the auction values on the 24 months dropped year-over-year?

No, there are a couple of things, Eric.

Normally between the third and the fourth quarter, and you can probably see it a little better in the appendix,, you see a decline of call it $800 to $1,000 normally.

We didn't see that last year in either the fourth quarter or the first quarter of 2013 because the impacts of Hurricane Sandy.

So as you look at the average 2012 number, it is a little inflated from the actual year-end value.

And when auction values are higher, generally people are going to keep their vehicles because they will have equity in it.

So now as we are getting back to a more normalized auction value performance, as auction values decline, some people tend to turn them in and, as we have said before, 24-month customers tend to return their vehicles at a higher rate than 36 month.

So overall, the total industry for late-model used vehicles saw about a call it 4.5% decline fourth quarter over third quarter.

We were about 5%.

We don't see that as a trend.

We think it is primarily related to Hurricane Sandy.

You'll probably see a similar type impact year-over-year in the first quarter, but overall for 2014 we are guiding that our residual performance will be pretty benign year-over-year.

Okay.

And then moving onto the regulators, we saw the CFPB levied a fine on Ally late last year.

Do you guys have any -- I mean I know you guys don't go as deep as others, and it will probably keep you above the fray, but I'm not looking for a number, just kind of any view on the liability.

Was my statement correct?

And then do you have any view on potential changes to dealer reserves because I saw that Ally accepted the fine, but there was no change to dealer reserves?

Is this just going to be a witch hunt around the FIN codes or do you think there is actually going to be a change in the business and kind of how do you guys look at your potential liability?

Well, obviously, I am not going to comment on Ally.

As we said before, we are committed to compliance.

We've built this into our corporate culture and we will continue to operate a sound responsible business under any regulations that they come out with.

Our goal is to focus on operating a strong financial service business, drive sales, satisfaction, long-term relationships with customers and dealers.

As it relates to compensation, we have no plans to change our compensation policies at this time.

However, one of the things we have done in line with CFPB guidance is we have told dealers that we have begun regularly analyzing data on their retail contracts.

So we think we are okay with the way we are proceeding and, obviously, we are going to comply with all laws.

I appreciate that.

Moving over to the auto side, Neil, it looks like South America got a big boost in pricing in the fourth quarter.

I was wondering is that due to the global products coming down there and how much of that are we going to see in this year that could help offset some of the FX problems?

It's Stuart here, Eric.

I will try to take that.

Your observation is correct; we have seen significant pricing in South America in the fourth quarter and actually also for the full year.

That pricing does reflect pricing on the new global products.

Principally this year that was around the EcoSport, the new small SUV.

But importantly, it also reflects pricing to recover devaluation effects of the currencies in South America and the related high labor and material economics that we see in those markets.

And actually the pricing has been significant, but not sufficient to fully offset all of those effects and that is one of the reasons that we have seen deterioration in our overall profitability this year in South America.

Going forward into 2014, we continue to deploy the product portfolio, they are global ONE Ford products that we are bringing to market, and we will be pricing in part to reflect that.

But also, again for the currency and inflation-related effects, that is really why we make some of our comments around uncertainty in South America.

You have seen the data just over the last number of days with accelerating levels of depreciation.

So it's somewhat uncertain.

Our teams there in South America have been there before, understand the markets and will stay very close to it, but exactly how it will come out is hard to predict right now.

I appreciate that.

And love the global product; I love seeing the impact of that.

Then just finally, just generally get a sense of the calendarization of the EU savings.

When is Genk going to be closed?

Is that aligned with when most of the workers are gone?

Just trying to get a sense of kind of how that flows through in 2014.

Is that a fourth-quarter closing and we get all the labor savings thereafter and in the restructuring then?

Just trying to get timing on that.

Yes, Eric.

It's at year-end 2014 and then there may be a small number of people that leave ahead of that, but it is really an end-year event.

Great.

I really appreciate the color.

Ladies and gentlemen, that concludes your presentation for today.

You may now disconnect.

Thank you very much indeed for joining.