福特汽車 (F) 2014 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 Kim and I will be your operator for today. At this time, all participants are 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, Mr. Steve Dahle, Manager Fixed Income, Investor Relations. Please proceed.

Thank you, Kim, 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 this morning are Michael Seneski, Ford Credit Chief Financial Officer; Neil Schloss, Ford Vice President and Treasurer; Stuart Rowley, Ford Vice President and Controller. We also have some other members of management who are joining us for the call today including Paul Andonian, Director of Global Accounting; 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 financial results discussed herein are presented on a preliminary basis. Final data will be included in our Form 10-Q.

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 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 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 report to the SEC.

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

Thanks, Steve. 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 turn to Ford Credit's operating highlights on slide one. 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 quarter, with pretax profit of $499 million, and net income of $312 million.

Managed receivables were $106 billion at the end of the first quarter, up $3 billion from year-end 2013, and up $12 billion from a year ago.

The first-quarter loss-to-receivables ratio was 20 basis points, unchanged from a year ago, while charge-offs were $52 million, up $7 million.

At March 31, the allowance for credit losses or reserve was $358 million or 34 basis points of managed receivables.

Managed leverage was 8.6 to 1 at March 31, 2014 compared with 8.5 to 1 at December 31, 2013. At the end of the first quarter, our equity was $10.8 million.

Slide two shows the factors that contributed to the largely unchanged result from a year ago.

The higher volume reflects increases in nearly all products: leasing in North America, and both consumer and non-consumer finance receivables in all geographic segments. The increases in leasing and consumer finance receivables reflect improved Ford Credit financing share as a result of changes in Ford's marketing program. The increase in non-consumer finance receivables is due to higher dealer stocks.

The unfavorable residual performance primarily reflects revised depreciation due to expectations of lower auction values in the North American lease portfolio.

As shown on the memo, our pretax profit was higher than fourth-quarter 2013 explained primarily by favorable residual performance due to higher auction values, as well as lower operating costs included in other. These factors are consistent with normal seasonality.

For the full year, Ford Credit now expects pretax profit to be about equal to or higher than 2013. This reflects improved financing margin performance.

Ford Credit continues to expect managed receivables at year end of about $110 billion, managed leverage to continue in the range of 8 to 1 to 9 to 1, and distributions to its parent of about $250 million.

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

Year-over-year charge-offs were up $7 million and quarter-over-quarter charge-offs were unchanged.

The loss-to-receivables ratio was equal to both the same period a year ago and the prior quarter and the absolute level of 20 basis points is still well below the 10-year average of 54 basis points.

The credit loss reserve was $358 million, down $31 million from a year ago, reflecting the continuation of low losses.

Slide four shows the primary drivers of credit losses in the US retail and lease business, which comprises approximately 72% of our worldwide consumer portfolio.

Over 60-day delinquencies were down 1 basis point from a year ago and equal to Fourth Quarter 2013.

Repossessions in the first quarter were 7,000 units, or 1.12% of average accounts outstanding, down 17 basis points from a year ago and down 2 basis points from the Fourth Quarter. The reposition ratio of 112 basis points is well below the 10-year average of 213 basis points.

Severity was $7,700 in the First Quarter, up 500 from the same period a year ago, primarily reflecting lower auction values and earlier time to repossession as we continue to grow our portfolio. Severity improved $400 from the Fourth Quarter, primarily reflecting seasonally higher auction values.

The year-over-year increase in charge-offs primarily reflects higher severity. The First Quarter LTR of 35 basis points was well below the US 10-year average of 76 basis points.

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

Lease return volumes in the first quarter were 34,000 units higher than the same period last year, primarily reflecting higher lease placements in 2011 and 2012 compared with prior years. The First Quarter lease return rate was 82%, up 13 percentage points compared with the same period last year, primarily reflecting a higher percent of vehicles with a lease-end purchase price above market value.

In the first quarter, our auction performance was mixed. Compared to prior year, 24-month auction values decreased about $600, while 36-month average auction values increased about $300. The differences in 24-month and 36-month trends primarily reflect vehicle content and segment mix. In addition, the trends were influenced by the non-recurrence of the effects of Hurricane Sandy in the First Quarter of 2013, which positively affected later model vehicles, primarily 24 month. Both 24-month and 36-month auction values increased significantly from the Fourth Quarter, consistent with seasonality.

Our worldwide net investment in operating leases was $18.8 billion at the end of the first quarter, up about $500 million from year-end 2013, and up $4.1 billion from a year ago.

Now I will turn it over to Neil.

Thanks, Mike, and good morning, everyone. Turning to slide six, we are on track to achieve our 2014 funding plan. In the First Quarter, we completed over $8 billion of funding in the public term markets.

Our public term issuance included $4 billion of unsecured debt transactions in the US, Canada and Europe, and about $4 billion of public asset-backed transactions in the US. Our asset-backed transactions included issuances in all three major asset classes.

We ended the quarter with about $34 billion of committed liquidity and net liquidity was about $23 billion.

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 seven shows the trends in the funding of our managed receivables.

At the end of the First Quarter, managed receivables were $106 billion and we ended the quarter with about $11 billion in cash. Securitized funding was 42% of managed receivables.

We are projecting 2014 year-end managed receivables of about $110 billion and securitized funding as a percentage of managed receivables in the range of 36% to 40%. This percentage will continue to decline going forward.

Slide eight shows our projected 2014 public funding plan for Ford Credit, excluding our short-term funding programs.

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

In addition to the $8 billion of term funding completed in the First Quarter, we have completed $1 billion of funding in April bringing our year to date total to $9 billion.

Turning to slide nine, our liquidity remains strong at $22.6 billion, up more than $1 billion 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 $44.7 billion of cash and committed liquidity sources, down slightly from year end.

Utilization of our liquidity totaled $21.4 billion and we ended the quarter with net liquidity of $23.3 billion; capacity in excess of eligible receivables was $700 million.

We ended the quarter with $1.6 billion of FCAR capacity and $1.3 billion of FCAR commercial paper. In April, we terminated the FCAR program. As it wound down, we transitioned the majority of the associated bank lines to other committed liquidity facilities.

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

Slide 10 shows the automotive debt at the end of the quarter was $15.7 billion, unchanged from year-end 2013.

We ended the quarter with net cash of $9.5 billion and automotive liquidity of $36.6 billion, both $400 million higher than year end.

Although not included in our total liquidity, we are in process of amending and extending our corporate revolving credit facility. The facility which is presently $10.7 billion is expected to grow to about $12 billion. This will provide the Company with additional liquidity as we expand our businesses globally and continue to show the great support we have from our global and growing bank group for the ONE Ford plan. Consistent with our capital and funding strategy, we plan to allocate $2 billion of this facility to Ford Credit to grow its overall liquidity supporting growth and expanded funding programs. We expect to close this transaction later this month and will provide details in our first-quarter 10-Q filing.

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

The Company achieved its 19th consecutive profitable quarter in the first quarter with positive operating-related cash flow.

Among the business units, Asia Pacific reported a record quarterly profit and North America and Middle East and Africa were profitable. Europe reduced its loss substantially compared with last year, but South America incurred a larger loss.

The Company ended the quarter with automotive net cash of about $10 billion and continues to have strong liquidity of over $36 billion.

Ford Credit is delivering profitable and sustainable growth.

Ford Credit had another solid quarter with pretax profits of $499 million with volume increases in all regions.

Ford Credit receivables increased 13% from a year ago, reaching $106 billion, as we support Ford's overall growth plans.

Our consistent purchase policy and world-class servicing continues to result in strong portfolio performance.

Our diversified funding plan is on track as we completed $9 billion of public term funding year to date, and we had strong liquidity at quarter end of $23 billion.

Ford Credit continues to deliver on the core elements of its Ford support strategy -- outstanding products and services, a strong and growing balance sheet, and consistent profitability.

With that, I will turn it to Steve to start the Q&A session.

Thank you, Neil. With that, we will start the question-and-answer session at this point. Kim, may we have the first caller please?

(Operator Instructions). Doug Karson, Bank of America.

Great, guys. Thanks. I have one or two brief questions relating from the earlier call. And slide 25 talks about the business units and what is on track and what is not. With the big miss in South America, something North America was a little lighter than expected, the total Company guidance is unchanged. Is there an offset to the South America kind of numbers? Is it Asia that is kind of offsetting that to kind of give you the same full-year guidance?

Yes, Doug. Thank you for the question. It is Stuart Rowley here. So on slide 25, you can see we did improve our guidance in three areas -- Asia-Pacific, we previously guided to be about equal; we are now guiding to be higher than last year. Net interest expense, we guided to be about $700 million, compared to our previous guidance of about equal to last year, which was $800 million. And then for Ford Credit, we also improved our guidance from being about equal, to being about equal to higher. So those three regions improved and one region deteriorated and the balance on track.

That is helpful. Then if I could just talk about South America for a moment. We have obviously been following the currency situation -- I'm looking on slide 14 and I'm looking at the net pricing up $359 million. Is that like inflationary pricing or -- because you have gotten volume weaker and revenue down, just kind of curious to understand that (multiple speakers) maybe exchange rate?

So, Doug, first of all, that net pricing of course excludes the volume effect and there are two things driving that net pricing. The first is pricing in response to inflation and the currency devaluation and then there is also some element in there related to our new products. As you know, we continue to roll out global product portfolio in South America. So those two factors drive that.

The pricing is not sufficient to cover what you might call the operating exchange effects plus the effect of inflation on our costs that comes through our material costs as suppliers look to pass on inflation to us and it comes through our structural cost in the form of wages and also commodity effects and contributions.

So we have been able to price substantially, but it is not sufficient, at least in this one period, to recover the operating exchange and inflation effects. Then of course in the exchange you also have the one-time balance sheet items that Bob discussed in the earlier call.

Great. That was helpful. That is it for me.

Brian Jacoby, Goldman Sachs.

Hi, guys. Thanks for the questions. My question is also related to kind of what came out on the earnings call around the warranty reserves and you mentioned on the call that typically in the first and the third quarter you will look at your warranty reserves and make adjustments. Is this something that -- I mean is there a possibility that we could see a favorable adjustment in third quarter?

And I guess the other thing is are there ever situations where away from a major product recall, is there ever a situation that would allow for adjustments to occur outside of first or third quarter?

Thanks, Brian. Yes, you are correct. The adjustments can be in both directions. We can increase reserves and we can reduce them, and we are looking at that period for which we hold reserves, a deep dive that Bob referred to in the first and the third quarters. Bob also mentioned that if we have a major cost item, in North America over $250 million threshold, then we flow that straight to the bottom line rather than putting that in the reserve. Those are relatively infrequent but as and when those happen, they would flow directly through.

So the answer is yes, they can go in both directions and yes you can also see effects outside of those first and third quarter.

Okay, thank you. And then just again related to the warranty actions, to be clear on the call, the earnings call, you made it sound like again these are reflections of your own products and how you are looking at through your model to estimate warranty reserves, it has nothing to do with what is going on in the industry I guess other than products are more complex and so forth. But I mean it has nothing to do what might be going on at other manufacturers or anything like that?

Yes, that is completely correct.

Okay, great. Thank you. That is it for me.

(Operator Instructions). This concludes our question-and-answer session. I will now turn the call back to Mr. Stephen Dahle.

Thank you, Kim. With that we would like to conclude today's call. Thank all of you for joining us.

This concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.