福特汽車 (F) 2015 Q1 法說會逐字稿

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

I would now like to turn the presentation over to your host for today's call, Mr. Steve Dahle, Manager Ford Fixed Income Investor Relations. Please proceed.

Thank you, Katina, and good morning to all. Welcome to those 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 our 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 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 the 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, which is planned for release later this afternoon.

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. As we have done in prior quarters, today we are going to cover Ford Credit's profit and credit loss performance, our funding and liquidity highlights, Automotive cash, debt and liquidity, and then we'll wrap things up with a summary of the quarter.

Let's turn to Ford Credit's operating highlights on slide one.

Ford Credit is a strategic asset to Ford that provides world-class financial services to our dealers and customers, and is an integral part of Ford's global growth and value creation strategy. We maintain a strong balance sheet that provides solid profits and distributions.

Ford Credit has had another strong quarter with pretax profit of $483 million and net income of $306 million.

Managed receivables were $113 billion at the end of the quarter, up $7 billion from a year ago.

Receivables were unchanged from year-end 2014, reflecting growth in all products and all geographic segments, offset by the exchange rate impact of a strong US dollar.

We launched dealer financing in India in March, with retail financing to come later this year.

The first-quarter loss to receivables ratio was 22 basis points, up 2 basis points from a year ago, while charge-offs were $62 million, up $10 million from a year ago.

At March 31, the allowance for credit losses, or reserve, was $355 million, or 31 basis points of managed receivables.

Managed leverage was 8.8 to 1 at March 31, compared with 8.7 to 1 at December 31. At the end of the first quarter our equity was $11.2 billion.

Looking at slide 2, in the first quarter, Ford Credit continued to demonstrate solid growth supporting Ford, including the launch of operations in India, as I just mentioned. Origination practices continue to be consistent and costs remain well-controlled and in line with our expectations.

Beginning this quarter we have made two changes to this slide in order to better explain our performance. We have added mix to the volume category, and we created an exchange category to isolate the impacts of exchange rate movements. You can find more info on these changes in our 2015 Ford Credit University presentation, which is available on our investor center website.

Our pretax profit this quarter was largely unchanged from a year ago. Favorable volume and mix primarily reflects higher consumer finance receivables in all geographic segments and an increase in leasing in North America. Lower portfolio pricing in all geographic segments drove the lower financing margin. The higher credit losses primarily reflect the non-repeat of reserve releases in all geographic segments that occurred in the first quarter of last year.

As shown below the chart, favorable lease residual performance due to higher auction values in North America contributed to the higher pretax profit compared with the fourth quarter.

For the full year, Ford Credit continues to expect pretax profit to be equal to or higher than 2014, year-end managed receivables of $123 billion to $128 billion, and distributions to our parent of about $250 million. We now expect managed leverage at the upper end of our range of 8 to 9 to 1 in the near term because of the translation impact of the strong US dollar.

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

We continue to experience historically low levels of credit losses. The first-quarter LTR of 22 basis points is well below the 10-year average of 46 basis points.

Year-over-year charge-offs were up $10 million and LTR was up 2 basis points.

Quarter-over-quarter charge-offs and LTR were down, primarily reflecting the non-repeat of an incremental loss recognized on previously impaired receivables in Europe.

And the credit loss reserve of $355 million is largely unchanged.

Slide 4 shows the primary credit loss drivers in our US Ford and Lincoln retail and lease portfolio, which comprised 74% of our worldwide consumer portfolio at March 31, 2015.

Over-60-day delinquencies remain consistently low at 13 basis points, down 3 basis points from a year ago and down 1 basis point in the fourth quarter.

Repossessions in the first quarter were 7,000 units, or 1% of average accounts outstanding, down 12 basis points from a year ago and down 6 basis points from the fourth quarter. The repo ratio of 1% represents our lowest first-quarter result on record.

Severity of $8,300 in the first quarter was $600 higher than the same period a year ago. $400 of the increase reflects a change to include certain repossession expenses in charge-offs that were previously recorded as operating costs. Excluding this change, severity was $200 higher than a year ago.

Quarter-over-quarter severity declined $300. Excluding the repossession expenses that I just mentioned, severity declined $700, primarily reflecting improved auction values.

The impact on credit losses of this repossession expense change will continue throughout the year.

First-quarter charge-offs were up $2 million and LTR was down 2 basis points from the prior year. Both charge-offs and LTR were down from the fourth quarter.

Slide 5 shows the quarterly trends of the lease residual performance for our US Ford and Lincoln brands. In the first quarter, lease return volume was lower than the same period a year ago, reflecting fewer 24-month lease placements in 2013 relative to 2012. Return rates have generally been consistent over the period.

In the first quarter, our auction values for 24-month contracts increased by $915 and 36-month auction values increased by $515 compared with the same period last year; this trend compares very well with available industry data. Both our 24-month and 36-month auction values increased from the fourth quarter, consistent with normal seasonality.

Our worldwide net investment in operating leases was $22 billion at the end of the first quarter, up $0.5 billion from year-end 2014.

With that, I will turn it over to Neil.

Thanks, Mike. Turning to slide 6, we are on track to achieve our 2015 funding plan. In the first quarter we completed about $10 billion of funding in the public term markets, split about equally between unsecured debt and asset-backed transactions.

We completed our second ABS transaction in China of RMB3 billion. This transaction is another step in our continued progress of implementing our funding strategy to be more capital markets focused.

We ended the quarter with net liquidity of about $28 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 7 shows our projected 2015 Global public funding plan for Ford Credit, excluding our short-term programs.

For 2015, the forecasted ranges are unchanged from our prior guidance.

Slide 8 shows the trends in funding of our managed receivables.

At the end of the first quarter, managed receivables were $113 billion and we ended the quarter with about $13 billion in cash. Securitized funding was 40% of managed receivables.

We are projecting 2015 year-end managed receivables in the range of $123 billion to $128 billion, and securitized funding as a percent of managed receivables in the range of 37% to 39%. We continue to expect this percentage to decline over time.

Turning to slide 9, we highlight Ford Credit's 2015 first-quarter liquidity. Our liquidity remains strong at $27.9 billion, an increase of $1.4 billion from year-end 2014.

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

As of March 31, our liquidity sources, including cash, totaled $48.5 billion, up $2.3 billion from year-end, reflecting higher cash balances to meet near-term debt maturities.

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

Slide 10 shows Ford's automotive debt at $13.4 billion at the end of the quarter, $400 million lower than the fourth quarter. Ford had maturities in Europe and Asia-Pacific, and we continue to pay down our US Department of Energy loans. These reductions were offset partially by the consolidation of Ford Sollers' external debt.

Ford ended the quarter with net cash of $6.1 billion and automotive liquidity of $30.2 billion.

Although not yet included in Ford's total liquidity, Ford is in the process of amending and extending its corporate revolving credit facility. The facility, which is presently $12.2 billion, is expected to grow to $13.4 billion. The increase in the facility will be almost entirely allocated to Ford Credit to support our growth and liquidity plans.

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

First quarter was a good start to a year in which Ford's results will grow progressively stronger as the new products Ford has been launching continue to build momentum. It was Ford's 23rd consecutive profitable quarter with positive operating-related cash flow.

Ford grew its global market share and achieved profitability in four of its six business units.

At quarter end, Automotive gross cash was $19.5 billion and liquidity was about $30.2 billion, in line with Ford's target levels.

Ford also reconfirmed company guidance for the full year 2015.

Ford Credit had another strong quarter.

With our consistent purchase policy and world-class servicing, our Ford Credit portfolio continues to perform well.

We have a diversified funding plan and ample liquidity in line with our long-term goals.

Ford Credit is a strategic asset and integral to Ford's business. It supports Ford and Lincoln sales and dealers, builds customer satisfaction and loyalty, and delivers consistent profits from its strong business.

Now that ends the presentation and I will turn it back to Steve to begin the Q&A session.

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

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

Thanks, guys. I've got a quick industry question on subprime. I have had so much incoming dialogue from investors on the worries around subprime and I'm certainly not seeing it at any of the companies that I cover.

Would you just maybe give us a little bit of your opinion on what you see in the subprime market? I know that's not a very big part of Ford Credit, but just what you're seeing out there in the field.

Sure Doug, it's Mike. Really in our opinion, we don't think there's much of a story in subprime. If you look at the subprime industry, it's actually flat year-over-year for the new business and it's actually down year-over-year for the used business.

We've seen a lot of third-party reports like Experian, Moody's and others, and they've all stated that they believe subprime originations are under control; as well as the performance of the portfolio as it relates to delinquencies. So I think overall, from the way that subprime is developing, there are no issues.

I would say that we are seeing increased competition in the subprime business, and it is getting more intense as we see banks and other players try their hand in this area. I will also say that we've seen that in the past and that tends to play out the way it plays out. So competition is getting a little greater, but not from a customer standpoint.

And the percentage of your portfolio dedicated to subprime is quite low. I'm remembering it was below 10%; is that correct?

A couple of different things, Doug. Remember, we look at our portfolio in terms of what we deem as higher risk; and we have consistently said that about 5% to 6% of our portfolio is higher risk.

If you look at our ABS transactions, it has been really consistent over time. There's an actual chart that shows the percent under 650 FICO has been remarkably consistent, between 17% and 19% for years.

Okay. And the question about the cash balance. Ford had a little bit of a weaker cash quarter seasonally, and then had some kind of one-time items below the line. What is the current Ford Credit dividend policy to the parent company? Just to make sure that I'm refreshed.

Well, as you know, we set our leverage to be between 8 and 9 to 1, and right now we expect that we are going to be at the higher end of that range, because of translation. And we said our receivables are going to be in the range of $123 billion to $128 billion, so we're going to hold equity consistent with that level of receivables. All equity that we don't need would be remitted to the parent.

Finally, for model purposes -- the North American margin was increased to I think 8.5 to 9.5. I couldn't remember from the call, but was there any kind of cadence given? I know that it's going to be much stronger in the second half, but we started seeing some meaningful improvement in that margin in 2Q. Because, if not, then we would have to have like 13% margins in the back end of the year.

Doug, this is Stuart. We didn't provide it on a quarterly basis, but we did say that Kansas City is at full speed during the second quarter --it's not quite there yet. And then, of course, the second half is clearly going to be stronger, as we have Edge in full production. This implies margin close to the 10% top end of the target in the second half with the 6.7% in Q1.

How about the Explorer? When is that going to be at full run rate?

Explorer changes over in the second quarter. The Explorer change is what we call a mid-cycle action, so in terms of the degree of change and therefore the impact on production, it's a much lesser change than we have seen on the F-150 and the Edge.

Perfect, all right. Thanks for the answers and that's it for me.

Brian Johnson, Barclays.

Just following up on the prior question about the broader subprime environment; I know that you don't exclusively use FICO scores and, in fact, with loyal Ford customers do you have a history of credit performance, at least on the Ford loans, that extends well prior to the seven-year look back for FICO scores and do you use that?

Yes, we look at a variety of different details when we are evaluating a customer, not the least of which is their prior experience with us. We also subdivide FICO, and we look at the structure of the deal -- there are a number of factors that go into our modeling. When we add it all up, about 5% to 6% of the portfolio is higher risk.

Second question would be the Wall Street Journal noted earlier this year that with FICO scores the look-back for foreclosure were quickly get to the point where 2007 foreclosures are apparently erased from the credit scoring and we're starting to go through 2008 foreclosures.

Can you just A) comment on that technically if that's true? And then B) what impact do you think that will have? Will we actually be seeing the sort of near prime borrowing pool, in effect, increasing because people will be graduating out of subprime?

Again, as it relates to us, our models subdivide FICO score into housing and others and so we're able to actually critique each component individually. I think in total, if you look at our average FICO scores, they have been remarkably consistent over the last number of years. Again, if it starts to marginally increase from where it's at today, our model should pick that up and we wouldn't see an undue impact on our portfolio.

I guess final question. Any impact yet from peer-to-peer, either in the new or blended market? And any sign that peer-to-peer industry could develop some sort of collateralization, lien-taking capability?

I'm not sure that we've seen anything, near term, anyway.

Yes.

Okay. Just one of the competitors actually says a common use of their admittedly unsecured, therefore higher-cost loans is for cars, but you haven't seen it. Thanks.

With that, I would like to conclude today's call. Thanks to all that have joined us.

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.