福特汽車 (F) 2014 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Second-Quarter Fixed Income conference call. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to Stephen Dahle, Manager of Fixed Income Investor Relations.

Thank you, Sarah, 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 the following: Michael Seneski, Ford Credit Chief Financial Officer; Neil Schloss, Ford VP and Treasurer; and Stuart Rowley, Ford VP and Controller. We also have some other members of the management team who are joining us for the call today including Marion Harris, Assistant Treasurer; Brian Schaaf, 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 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 reports 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 pre-tax profit of $434 million and net income of $264 million.

Managed receivables were $111 billion at the end of the Quarter, up about $8 billion from year-end 2013 and up $15 billion from a year ago.

We made great progress on funding milestones that support our growth and Neil will talk more about this in a few minutes.

The Second Quarter loss receivables ratio was 12 basis points, down 2 basis points from a year ago, while charge-offs were $33 million, largely unchanged from a year ago.

At June 30, the allowance for credit losses or reserve was $353 million, or 32 basis points of managed receivables.

Managed leverage was 8.6 to 1 at June 30, 2014, compared with 8.5 to 1 at December 31. At the end of the Second Quarter our equity was $11.2 billion.

On slide two, Ford Credit's lower pretax profit this quarter compared to a year ago is more than explained by a higher level of insurance losses from storm damage to dealer inventory included in Other.

Volume was higher, reflecting increases in nearly all products, leasing in North America and both consumer and non-consumer finance receivables in all geographic segments.

The higher volume, though, was largely offset by unfavorable residual performance related to expectations of lower auction values in the North America lease portfolio and all of the other factors.

As shown in the memo, pretax profit was lower compared with First Quarter, more than explained by the insurance losses just mentioned.

For the full year Ford Credit now expects pretax profit to be higher than 2013, improved from about equal to or higher. Ford Credit also now expects year-end managed receivables of $112 billion to $115 billion, up from prior guidance of about $110 billion.

Ford Credit continues to expect managed leverage in the range of 8 to 9 to 1 and distributions to its parent of about $250 million.

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

Year-over-year charge-offs were largely unchanged. Quarter-over-quarter charge-offs were down $19 million, consistent with normal seasonality.

The loss receivables ratio was 2 basis points lower than the same period a year ago and 8 basis points lower than the prior quarter. The loss receivables ratio of 12 basis points is well below the 10-year average of 54 basis points.

The credit loss reserve was $353 million, down $23 million from a year ago, reflecting the continuation of low losses.

Slide four shows the primary drivers of credit losses in the U.S. retail and lease business, which comprises 71% of our worldwide consumer portfolio.

We remain consistent in our origination practices.

Over 60-day delinquencies were 12 basis points, about consistent with the prior year.

Repossessions in the Second Quarter were 6,000 units, or 98 basis points of average accounts outstanding, down 8 basis points from a year ago and down 14 basis points from First Quarter. This is our lowest repossession ratio on record.

Severity was $7,300 in the Second Quarter, down $300 from the same period a year ago and down $400 from the prior quarter. These improvements primarily reflect higher auction values.

Second-quarter charge-offs and LTR were consistent with the prior year and down significantly from the first quarter, consistent with normal seasonality.

Slide 5 shows the U.S. Ford and Lincoln lease residual performance.

Lease return volumes in the Second Quarter were 23,000 units higher than the same period a year ago, primarily reflecting higher lease placements in 2011 and 2012 compared with prior years. The Second Quarter lease return rate was 75%, up 7 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 second quarter our auction values for 24-month contracts increased by about $100, while 36-month auction values increased by about $1,000 compared to the same period last year, consistent with industry trends. The difference in 24-month and 36-month auction value increases primarily reflect differences in vehicle content. Both our 24-month and 36-month auction values increased from the First Quarter, consistent with industry trends as well.

Our worldwide net investment in operating leases was $19.9 billion at the end of the second quarter, up about $1.6 billion from Year-End, and up $3.7 billion from a year ago.

Now I will turn it over to Neil.

Thanks, Mike. Turning to slide 6 we are on track to achieve our 2014 funding plan. Year-to-date we have issued $17 billion of public term funding.

In the Second Quarter we completed over $8 billion of funding in the public term markets, consisting of about $4 billion of unsecured debt in the U.S. and Europe and about $4 billion of public asset-backed debt in the U.S., Canada, Europe, and China.

Additionally, as Mike mentioned earlier, we achieved a number of very significant funding milestones in the second quarter.

We were the first wholly foreign-owned auto finance company to issue a public asset-backed transaction in the Chinese ABS market, a key pillar to our growth strategy and China.

In the U.S.:

We launched our inaugural retail revolving ABS transaction -- what we call FordREV. Our first issuance was for $1 billion with a five-year maturity. We launched a medium-term note program

And with the ratings from three of the major US rating agencies

we returned to the Tier 3 unsecured commercial paper market.

Finally, we also extended and grew our FCE revolving credit facility.

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 for our managed receivables. At the end of the second quarter managed receivables were $111 billion and we ended the quarter with about $9 billion in cash. Securitized funding was 40% of managed receivables.

We project year-end managed receivables of $112 billion to $115 billion and securitized funding as a percent of managed receivables in the range of 36% to 40%. This percentage will continue to decline going forward.

Slide 8 shows our projected 2014 public funding plan for Ford Credit, excluding our short-term funding programs.

As I mentioned earlier, we have completed $17 billion of public-term funding in the US, Canada, Europe, and China.

We project full-year public-term funding in the range of $24 billion to $29 billion, consisting of $10 billion to $13 billion of unsecured debt and $14 billion to $16 billion of public securitizations. Our funding ranges are up slightly from previous guidance, given the increase in our projected year-end receivables.

Turning to slide 9, our liquidity remains strong at $27 billion, up more than $4 billion from the prior quarter, reflecting increased liquidity sources and reduced utilization.

Ford Credit sources of liquidity include cash, committed asset-backed lines, unsecured credit lines, and the corporate revolver allocation. The FCAR program officially ended in April.

As of June 30, we had $46.5 billion of cash in committed liquidity sources, up $1.8 billion from prior quarter.

Our liquidity includes $2 billion of the corporate revolving credit facility allocated to Ford Credit and the FCE syndicated credit facility, which was increased to GBP760 million and extended to October of 2017.

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

Slide 10 shows the automotive debt at the end of the quarter was $15.4 billion, $300 million lower than the first quarter.

Ford ended the quarter with net cash of $10.4 billion and automotive liquidity of $36.7 billion.

Ford completed in the quarter its corporate credit facility amendment and maturity extension. The facility is now $12.2 billion, of which $2 billion has been allocated to Ford Credit.

Now let's turn to the summary of the first quarter on slide 11.

Overall, the Company delivered a strong quarter. It achieved its 20th consecutive profitable quarter and its best quarterly pretax profit since second quarter of 2011.

Among the automotive business units, North America achieved record quarterly performance for pretax profit, Asia Pacific achieved a Second Quarter record, and Europe earned its first quarterly profit since the market dramatically declined three years ago.

The Company ended the quarter with automotive net cash of $10.4 billion and continued strong liquidity at $36.7 billion.

Ford Credit is delivering profitable, sustainable growth.

We had another solid quarter with pretax profit of $434 million and net income of $264 million.

Ford Credit's receivables increased 16% from a year ago, reaching $111 billion, as we support Ford's global growth plans.

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

Our diversified funding plan is on track as we completed $17 billion of public-term funding year-to-date and we had a strong liquidity of almost $27 billion at the end of the quarter.

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 over to Steve to begin the Q&A session.

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

(Operator Instructions) Doug Karson, Bank of America.

Great quarter, congratulations on that. I just had a couple of questions, maybe start with the balance sheet. I know Ford has got a really good target for total automotive debt at around $10 billion by mid-decade. Are you guys still on track with that I guess if we assume that you take out the convert?

Yes.

Perfect. On the cash flow side, I was just kind of comparing the full-year plan with an update from the quarter. And it is a small change, but it looks like cash flow went from being substantially lower to lower. Am I right in thinking that? And if so, do we know what is driving that improvement? Can you give us some magnitude of it, if at all?

Doug, it is Stuart. You are correct; we have improved our guidance from, as you said, substantially lower to lower. That is really based on the strong first-half performance. I think you can see we are about $3.8 billion to date of operating-related cash flow.

We have really -- in addition to obviously the profit side of the business we have had a great focus on working capital and continuing to drive efficiencies in that area of our business across the globe. We have been making good progress and our outlook is somewhat stronger than it was when we went into the year.

That is helpful. Then kind of some bookkeeping. It looks like your global loss to receivables is down 0.12, which I think is the lowest I have seen it. Is there any kind of strategy for maybe providing loans to customers that have a little bit higher risk and trying to expand some profitability, because that is a pretty low metric?

Doug, it is Mike. Remember our strategy is to be consistent in our origination practices and we have continued to do that. So we look at this from a couple of different perspectives.

First is what percent of our portfolio is high risk and that, from our perspective, has been very stable in the 5% to 6% range. The other side of that coin is what percent of Ford buyers who have a FICO less than 620 is Ford Credit financing. Again, I have said this oftentimes, we are getting three out of four customers who finance a Ford vehicle who have a FICO score less than 620. And that has been pretty stable as well.

So as we look at it, we are getting our share of the risk for the people who are walking through the door. It is our servicing -- origination and servicing practices that are delivering these types of levels. It is not our loss. We were down at 8 basis points a couple of years ago, but obviously these levels are well below our long-term average and customers are just paying.

That is very helpful. I think there is quite a few kind of comments on the F-Series on the previous call and I try to understand them. Just had a follow-up question.

I know the new F-Series is coming out and that is going to be a game-changer potentially. Have you seen a little bit of weakness in the existing F-Series sale cadence? Maybe are people waiting for the new vehicle or is it tough year-over-year comps? Just to kind of get my head around that.

No, Doug, this is Stuart here again. We are seeing continued strong demand for F-Series. You will notice our share in North America was down year on year in the Second Quarter and part of the explanation that Bob shared was that some of that was F-Series.

But that is really around our management of our production and our sales as we go into this period where we will shut down the first of our F-Series plants in the Second Half of this year and then our Kansas City plant next year. So we expect to have constraints on the supply side and so we are managing share and pricing and stocks as a group. As a result, we have seen strong net pricing on F-Series but our share is somewhat lower, but it is not through a lack of demand.

Great. That is it for me. I appreciate it, thank you.

Brian Jacoby, Goldman Sachs.

Thanks for taking my question. Just a broad question around subprime. New York Times had a pretty big article over the weekend about how -- almost comparing it to how subprime auto lending could equate to similar to the downturn and what happened in 2008 with mortgages, which seems kind of overdone. But just trying to get my arms around what you guys are thinking as to whether that could actually be a risk for industry volumes at some point down the road.

Obviously, a lot of the financing in that arena is more non-captives and some entities that are obviously smaller. But I am just trying to get an idea of what you guys are viewing, whether there truly is sort of an air pocket there a little bit in the subprime market and then perhaps maybe it is overextended.

It is true that subprime is up. I think last year it was about 14% of the industry. This year I think it is running 18%-plus. It actually mitigated a little bit in the Second Quarter, but we are seeing a lot more of that happen.

You are also right in that it seems to be happening in the non-captive space. As I said, we are still capturing three out of four of the subprime customers who buy a Ford vehicle.

Is it a worry for the industry? Again, if we are doing three out of four, we are kind of managing those customers as best as we think we can and we are going to work with them to get them back into new Ford cars and trucks, as we always have.

All we can comment on is our own performance. We think our risk appetite is the right risk appetite and you can obviously see from the results on slide 4 that our delinquencies and repos are performing extraordinarily well.

Is there a risk with interest rates popping up? Absolutely, but certainly I don't think so to a much lesser extent to somebody like Ford Credit.

Got you, okay. Then one other follow-up there just around the financing market in China, which obviously is in its infancy. It is very small, but it sounds like some buyers in China are opening up to financing a smaller portion of the car at least now.

Just kind of wanted to get your thoughts again there. I know in the past you have commented on it, but I am just curious how you see the financing opportunity in China and how that is playing out.

As you know, we have a wholly-owned subsidiary in China and we are working very closely with the Motor Company to really support what we see as phenomenal growth on the auto side.

What has been said about the financing industry in China is about 20% of customers finance a car, so the other 80% are showing up with a bag of cash. For the 20% who are financing, they show up with a half a bag of cash.

So overall the industry is in its infancy, but we are working to expand our funding and continue to support Ford as best we can.

The ABS deal we think is a watershed for expanding that market and we are going to expand there with the same discipline that we have all around the world.

Okay, thanks. That is it for me. Good quarter.

It looks like there are no further questions in queue, so I will turn it back over to Stephen for closing remarks.

Thank you, Sarah. With that I would like to conclude today's call. Thank you all for joining us.

Thank you very much. You may all disconnect and have a wonderful day.