福特汽車 (F) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Ford fourth-quarter Fixed Income conference call. My name is Sheila and I will be your operator for today. (Operator Instructions) As a reminder, this call is being recorded for replay purposes.

I would like to turn the call over to Mr. Stephen Dahle, Manager of Fixed Income Investor Relations. Please proceed, sir.

Thank you, Sheila; and good morning ladies and gentlemen. Welcome to all of you who are joining us either by phone or by webcast. On behalf of the entire Ford management team, I'd 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; Brian Schaaff, Assistant Treasurer; Paul Andonian, Director of Global Accounting; and George Sharp, Executive Director of 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-K.

Additionally, the financial results presented here are on a GAAP 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 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 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. Today's presentation will cover Ford Credit's profit and credit loss performance, including our outlook for 2015; Ford Credit's funding and liquidity highlights; Automotive cash, debt, and liquidity; an update on Ford's pension; and then we'll 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 and value-creation strategy, providing world-class dealer and customer financial services, maintaining a strong balance sheet, and producing solid profits and distributions.

Ford Credit's pretax profit of $1.9 billion for the full year and $423 million for the fourth quarter were the highest since 2011.

Net income for the year was $1.7 billion and $411 million in the fourth quarter. The full-year net income reflects favorable tax items recorded during the year.

Managed receivables were $113 billion at year-end, up $10 billion from year-end 2013.

The full-year loss-to-receivables ratio was 19 basis points, up 1 basis point from a year ago, while the fourth quarter was 27 basis points, up 7 basis points from a year ago.

Full-year charge-offs were $209 million, up $33 million from 2013. And the fourth quarter was $76 million, up $24 million from last year.

At December 31, the allowance for credit losses or reserve was $359 million or 32 basis points of managed receivables.

Ford Credit paid distributions of $395 million to our parent during 2014

Managed leverage was 8.7-to-1 at December 31, up from 8.5-to-1 at December 31, 2013. And at year-end, our equity was $11.4 billion.

Slide 2 is our year-over-year comparison for the fourth quarter. The improved pretax profit is more than explained by higher volume and favorable market valuation adjustments to derivatives included in Other.

The higher volume reflects increases in consumer finance receivables and operating leases globally, as well as non-consumer finance receivables in the international segment.

A partial offset is lower margin, driven primarily by a one-time reserve in Europe and the runoff of higher-yielding assets originated in prior years in North America.

As shown in the memo, pretax profit was lower than the third quarter, explained primarily by lower margin, reflecting the Europe reserve.

Slide 3 provides an explanation of the change in Ford Credit's full-year pretax profit compared with 2013.

The improvement is more than explained by higher volume, driven by increases in consumer and non-consumer finance receivables globally as well as operating leases in North America.

Partial offsets include unfavorable lease residual performance in North America resulting from lower relative auction values and lower financing margin. The lower financing margin primarily reflects the Europe reserve previously mentioned and lower portfolio pricing in North America.

For 2015, Ford Credit expects full-year pretax profit to be equal to or higher than 2014; year-end managed receivables of $123 billion to $128 billion; managed leverage to 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'll be discussing quarterly key metrics as they relate to asset performance. Annual data has been included in the appendix for your reference.

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

Year-over-year charge-offs and LTR were up from a year ago, primarily reflecting increased severity in the US and an incremental loss recognized on previously impaired receivables in Europe.

Our quarter-over-quarter increases in charge-offs of $28 million and loss-to-receivables ratio of 10 basis points primarily reflect the same factors noted above. The loss-to-receivables ratio of 27 basis points is consistent with our expectations and well below our 10-year average of 54 basis points.

The credit loss reserve was $359 million, down $21 million from a year ago and about equal to the third quarter, reflecting the continuation of low charge-offs.

Slide 5 shows the primary credit loss drivers in our US Ford and Lincoln retail financing and operating lease portfolio, which comprise 73% of our worldwide consumer portfolio at December 31, 2014.

Over 60-day delinquencies remain consistently low at 14 basis points, down 2 basis points from a year ago, and down 1 basis point from the third quarter.

Repossessions in the fourth quarter were 8,000 units or 1.06% of average accounts outstanding, down 8 basis points from a year ago and down 1 basis point from the third quarter. The 1.06% represents our lowest fourth-quarter result on record.

Severity was $8,600 in the fourth quarter, up $500 from the same period a year ago, and up from the prior quarter. The increase from fourth-quarter 2013 primarily reflects earlier time to repossession, as we continue to grow our portfolio and the increase from the third-quarter 2014 primarily reflects lower auction values, consistent with normal seasonality.

Fourth-quarter charge-offs were up $10 million and the LTR was up 3 basis points from the prior year, primarily reflecting higher severity and repossessions. Both charge-offs and LTR were up from the third quarter, reflecting the same factors.

There have been conflicting news reports about whether there are issues with increased subprime lending and delinquencies in the auto industry. As you see in our results, with appropriate originations and risk management the portfolio will perform as expected. Ford Credit has a great track record of doing this, and we believe the industry has continued to perform well overall.

Slide 6 shows the quarterly trends of the lease residual performance for our US Ford and Lincoln brands. In the fourth quarter, both the lease return volume and return rate were consistent with the same period a year ago.

In the fourth quarter, our auction values for 24-month contracts decreased by $170, while 36-month auction values increased by $265 compared to the same period last year. The differences in 24-month and 36-month auction value performance primarily reflect differences in model year refresh timing.

Both our 24- and 36-month auction values decreased from the third quarter, consistent with normal seasonality.

Our worldwide net investment in operating leases was $21.5 billion at the end of the fourth quarter, up $3.2 billion from year-end 2013.

With that, I'll turn it over to Neil.

Thanks, Mike. Turning to slide 7, we will walk through our full-year 2014 funding highlights.

In 2014 we issue $28 billion of public term funding, which included about $13 billion of unsecured debt. In the fourth quarter, we issued $6 billion, which included about $3 billion of unsecured.

We also launched several new funding platforms in 2014, increasing our diversification of funding channels and investors.

In the US, we introduced a retail revolving ABS platform and returned to the medium-term note and Tier 3 unsecured commercial paper markets.

In China, our wholly-owned Auto Finance Company issued a public retail asset backed transaction in the local market, and we completed a $2 billion RMB onshore syndicated term loan.

Lastly, we had our first-ever public unsecured issuance in Brazil.

We ended the year with net liquidity of $27 billion. This included the allocation of $2 billion of Ford's revolving credit facility, the extension and growth of the FCE Bank unsecured credit facility, and the transition of our FCAR asset-backed CP program to other committed ABS lines. Net liquidity was flat compared with the third quarter.

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 8 shows our 2014 and projected 2015 global public funding plans for Ford Credit, excluding our short-term funding programs.

As I mentioned earlier, in 2014 we issue $28 billion of funding in the public markets, split about equally between unsecured and secured.

For 2015, we project full-year public term funding in the range of $25 billion to $31 billion. We have gotten off to a quick start already this year, with $3.5 billion issued to date.

At a high level, even with a growing balance sheet, our term funding requirements are flat year-over-year. This reflects our higher mix of longer-term unsecured debt.

Slide 9 shows the trends in funding for our managed receivables.

At the end of 2014, managed receivables were $113 billion; and we ended the year with about $9 billion in cash. Securitized funding was 38% of managed receivables, down from 44% at year-end 2013, reflecting our greater mix of unsecured debt.

We are projecting 2015 year-end managed receivables of $123 billion to $128 billion and securitized funding, as a percent of managed receivables, in the range of 36% to 38%. We expect this percentage will continue to decline over time.

Turning to slide 10, we highlight Ford Credit's 2014 year-end liquidity. Our liquidity remains strong at $26.5 billion, about the same as the third quarter, and up about $5 billion compared to year-end 2013.

Ford Credit sources of liquidity include cash, committed asset-backed lines, unsecured credit facilities, and a corporate revolver allocation.

As of December 31, our liquidity sources including cash totaled $46.2 billion, down $1.3 billion from the third quarter, reflecting lower cash balances.

We are focused on maintaining a strong liquidity position to meet our business and funding requirements.

Slide 11 shows the Automotive debt level at the end of the quarter was $13.8 billion, $1.1 billion lower than the third quarter, including actions taken on Ford's 2016 convertible notes.

Ford ended the quarter with net cash of $7.9 billion and Automotive liquidity of $32.4 billion.

Slide 12 provides an annual update on Ford's global pension plans.

Worldwide pension expense, excluding special items, was $1 billion, $600 million lower than 2013, driven primarily by higher discount rates at year-end 2013 compared to 2012.

In 2014, Ford made $1.5 billion in cash contributions to its worldwide funded pension plans, down $3.5 billion reflecting the improved funded status. In 2015, cash contributions to Ford's funded plans are expected to be about $1.1 billion globally; most of which are mandatory.

Worldwide, Ford pension plans were underfunded by $9 billion at year-end, unchanged from year-end 2013 despite significantly lower discount rates - down about 80 basis points in the US and about 100 basis points in plans outside the US; these were offset by strong asset returns, planned contributions, and favorable exchange. These results are clear evidence that Ford's de-risking strategy is working. Of the $9 billion underfunded status, about $6.5 billion, or about 70%, is associated with unfunded plans.

Asset returns in 2014 for Ford's US plans were 16.4%, and 15.7% for non-US plans, reflecting fixed-income gains as interest rates fell as well as strong growth asset returns.

Ford has continued to increase the mix of fixed-income assets with the objective of reducing funded status volatility. The fixed-income mix in Ford's US plans at year-end 2014 was 77%, up from 70% the prior year. The US plans were 97% funded at year-end.

Now let's close with a summary of 2014.

The fourth quarter was Ford's 22nd consecutive profitable quarter. Automotive operating cash flow was positive and liquidity remained strong.

For the full year, the Company delivered its fifth consecutive year of pretax profit and positive Automotive operating-related cash flow, and results were consistent with guidance. North America was profitable, and Ford achieved a record profit in Asia Pacific. Ford Credit's profit was its highest since 2011. While Ford reported losses in other business units, Europe, Middle East & Africa improved from a year ago.

Ford's global pension plans were underfunded by $9 billion at the end of the year, unchanged from 2013 despite significantly lower discount rates.

At year-end, Automotive gross cash was $21.7 billion and liquidity was $32.4 billion.

Ford Credit's receivables increased 10% from a year ago, ending at $113 billion.

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

We have a diversified funding plan, strong liquidity, consistent with our long-term goals.

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

With that, I'll turn it back to Steve to begin the Q&A session. Steve?

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

(Operator Instructions) Brian Jacoby, Goldman Sachs.

Thanks. Good morning, guys. A couple quick ones. You mentioned on subprime in the beginning -- it sounded like you were almost implying that the industry as well as Ford, that there is not a bubble, and that your results -- obviously you are not a big player there. But it almost sounded like you feel like the industry is not over its skis in subprime.

Is it fair to say that that's how you're viewing the thing, viewing the sector in terms of subprime?

Yes, Brian; I think that is fair. I mean if you look at the data, in fact, every quarter this year after the first quarter subprime as a percent of the total for new and used came down. And in total it's actually well below where it was before the crisis.

So although the numbers are up dramatically from 2009 or 2010, they are up in line with the growth in prime business. I think if you look at the overall industry, delinquencies and performance -- and obviously our data looks fantastic, not just on a quarterly basis, but look at our annual stuff in the back -- we believe that it's being well controlled.

Okay, great. We would agree with you on that. It's just -- I guess one question on that topic is just when -- is there some type of time frame on when the regulatory side in reviewing this is going to be completed? Or do you guys care to comment on that just for the industry as a whole?

Well, we are not part of that, so it's hard for me to comment on it. I will say that no ABS that has ever had these has ever not performed. So we'll see what comes out of their investigation.

Okay, great. And then just two housekeeping questions. One is around -- on the earnings call earlier today, it was mentioned about cash flow and working capital, and some of the contributors to the improvement in cash flow for 2015. Was I correct in hearing -- does is sound like you're saying working capital will be roughly similar level as it was in 2014, and then just the overall earnings improvement is going to drive the broader improvement in cash flow? Is that the takeaway?

Yes, Brian, this is Stuart. I think the key takeaway I'd give you is that the improvement is primarily the flow-through of the improved earnings. And there are timing differences, working capital will move around, CapEx is marginally higher. But the key difference is the earnings line.

Okay. Then the last one is just around your lease residuals, and then just what's going on with a lot of vehicles coming off lease for you and for the industry. Can you give me a flavor for what your off-lease mix will look like over the course of the next, say, year?

What do you mean by mix?

Well, just the type of vehicles that will be coming onto the market for Ford and for the broader industry, in terms of when the leases expire and the vehicles hit the auction market. Are we going to see a preponderance of more cars versus trucks, obviously?

But maybe just a flavor for how to think about the vehicles that are going to be hitting the market. Because there's obviously a lot of vehicles for the industry coming off lease at the end of this year.

Yes, and again, I think that 2015 is another step up from 2014. So you're going to see more vehicles in the used market.

As it relates to Ford, remember what we've been talking about is our One Ford Lease strategy that we've implemented with the Motor Company, that really puts boundaries around the types of vehicles, where those vehicles are located, the trim levels, the payment walk between retail and lease, to try and mitigate any over-indexing on any one type of vehicle.

So we think our risk profile is significantly stronger than it's been in the past, and we actually expect our auction values next year to remain relatively flat, even though we expect the overall industry to decline just a little bit, because of our cadence of new vehicles and the way that we've got the vehicles coming back.

Okay. Appreciate that. Thanks; and congrats on managing that US pension plan. Hopefully the rating agencies take note to that, but nice job on the funding there. That's it for me.

We're advertising it to them.

Good.

Eric Selle, SunTrust Robinson.

Hey, good morning. Geez, I wish I had my retirement funds in your pension fund; that's a nice return. And echo Brian's congratulations on that.

But dovetailing off what he was talking about, the leases -- because we have seen some of this off-lease volume in the fourth quarter. And, Mike, my question to you is: what is the behavior you are seeing from your Japanese and German peers as they handle this off-lease volume? Are they supporting residuals?

Because we are certainly not seeing it in your results and we are not seeing it in Manheim yet. And I thought the big -- fourth quarter, first quarter, was a big slew of it. Are you seeing any weird behavior? Or are they going to continue to support residuals as we expect?

So far, Eric, I guess the best answer to that is it's performing relative to our expectation. We actually saw the very end of the year auction values tick up a little more than what we thought they were going to.

So it remains to be seen how that flows through to the first quarter. But I can't really comment on what the competitors are doing at this stage. We haven't seen anything untoward.

That's good. That's good. No change is always good.

Then what was the major cause of the $1.7 billion drop in cash sequentially? Is that timing, or is there something special there?

In the total Automotive results?

No, no, no, the FinCo. The FinCo went from $10.6 billion to $8.9 billion in third quarter to fourth quarter of cash and marketable securities.

It's predominantly timing. It's timing of funding and timing of maturities and assets at the end of the year. It all plays a role. There was nothing unusual relative to what we would have expected.

Okay. Then -- and I look at your AR growth here, I think I'm doing the math right; your accounts receivables are expected to grow around 11%, but your Automotive global volume is only supposed to grow 3%.

Is that assumption you are going to grab share at both FinCo and Auto with all the new products you guys are coming out, with the big launch activity -- is that the main assumption on that growth in receivables? Or are you guys going to try to grab share on the FinCo side, beyond that Auto share?

It's mostly Auto share and continued growth in China, so both from a little bit of a share perspective as well as the strong growth in Ford's results there. But as we've said before, our plan is to primarily ride the industry and Ford's share up. We think the shares that we have in our established markets are very good, and we've made a lot of progress in Europe over the last year as well, so we expect that to continue.

Then we saw this in the fourth quarter last year, and I know I'm talking over minor numbers -- we're talking about $20 million on a huge Company. But as I standardize that, provision as a percentage of charge-offs, and I look at it in an absolute level, it's the highest we've seen in several years.

Is that just the growth in the portfolio? Because you guys obviously aren't going deep. Is that just -- is there any slip in consumer credit that you guys are seeing? Or is that just growing into the portfolio in the lag of the assets?

It was consistent with our expectations. I think you're right; I think the first thing we are dealing with is the Law of Small Numbers. But a couple of points.

One, quarter 4 is always a big uplift versus quarter 3. So you see that every year.

Two, our portfolio is growing.

And three, we had the write-down of some receivables in Europe as well, which won't continue.

So if you take that write-down out, basically we think that we were about where we expected; and we expect our LTR going forward to be up a little bit.

Again, we've been coming up 1 or 2 basis points a year. We expect that to continue in 2015 as the markets normalize, but be well below our historical average of 54 basis points.

Okay. If I can slip one in, Neil, I've got to ask you one question. If we look at CapEx, is that -- you guys are going to have a lot of launches, front-end loaded. Should we assume CapEx is slightly higher than last year?

Or maybe you can't comment on that because -- but just wondering where -- that's the one piece in the cash that I don't have a good handle on.

It's Stuart, so I'll answer that one for you, Eric. We provided guidance of CapEx of seven five.

Okay, I missed that.

Now it's seven-five for the year, which is -- our actual came in at seven-four.

Okay, great. Hey, listen. I appreciate your time.

Doug Karson, Bank of America.

Thanks, gentlemen. I have a question or so on the Credit business, and then if I could just ask a follow-up from this morning's call. It looks like the full-year guidance is equal to or better than 2014 for Ford Credit.

I am wondering. We've had good volume growth; I think you did $357 million favorable in volume in 2014, and offset by financing margin and losses. What would be the drivers to get us above, if we were going to have an above number? Would it be more volume, or would it -- I mean, what would really get us there?

Because it looks like the financing margin really turned weaker in the fourth quarter, $71 million unfavorable versus full-year of $87 million.

Hey, Doug; it's Mike. Well, as I had said, part of that $71 million was a one-timer that we don't expect to see happen again.

Our guidance -- that's really where we're at today. It's really -- it's January 20-something. To make a call on rate, spreads, auction values, credit losses, exchange -- we'll let you know as the year progresses if we have a chance. If I had to make a call today, it would be our hope that we have an opportunity to end up higher; but it's really going to depend on how those things evolve throughout the year.

Right. Makes sense. If I could turn to South America, I know this was discussed on the call. One of the things I'm a little confused about, there will be a substantial improvement in 2015 as to guidance.

One, I think Venezuela is being pulled out of that number. The question is: when did Venezuela get pulled out? And what exactly, by pulling Venezuela out, is happening to the numbers? That could really be contributing a lot to be improvement, by pulling Venezuela out.

Then separately, what are some of the other drivers that could be making that number better? I think it was a very good job in Europe discussing that; but I didn't come away clear on South America.

Okay, Doug; it's Stuart here, so let me try to answer your question there. First of all, that change in accounting for Venezuela was effective December 31, so we recorded the charge in 2014.

The operating results, though, for Venezuela in 2014 remain in the 2014 results. You'll recall we don't break out market profits, but we did talk about the impact of the devaluation in the first quarter that was part of South America's results, for the bolivar, which was significant.

As Bob said on the call then, in 2015 we won't have anything in our results for Venezuela, other than if we sell components to Ford Venezuela or receive dividends. And we don't assume that we will receive dividends.

So Bob did mention that Venezuela was a loss, including that bolivar devaluation in the first quarter. So you would be right to assume that year-to-year it's a contributor to the improvement. That said, it's not the only contributor to the improvement.

Other than Venezuela, outside of Venezuela in South America, you really need to think about the impact of the new products, and in particular in Brazil where we launched the new car in the back half of last year. That product just started to hit the showrooms in volume during the fourth quarter.

It's been very well received. It's a very important product for the region. In addition to that, we have further vehicle launches coming in 2015, so we expect to see a favorable effect from those product launches in volume and in pricing.

Other headwinds, clearly the environment in South America remains somewhat volatile. The impact of exchange rates, the impact of commodity prices as expressed in local exchange rates, so -- a number of other factors going on. But the real driver of the improvement is the product story.

New product? Okay, great. That's it for me. Thank you for the answer.

[Mark Alter], Credit Suisse.

Yes, good morning. Just a question. The $1.1 billion you're going to put into pension funds this year, is that mostly US? Or how would that break down?

No, it's mostly not -- I think that's almost all outside the US.

Okay. And unless I missed it, you mentioned that the US plans were 97% funded. How were the other plans that needed to be funded funded?

It varies by plan, and that's a number we have not disclosed.

Okay. Then I guess the last question, on the -- how much did FX effect the translation from the non-US plans to this funded status or underfunded status?

About $900 million.

Okay. All right. Thank you.

Thank you. Now I'd like to turn the call over to Stephen Dahle for closing remarks.

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

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