福特汽車 (F) 2015 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter Fixed Income conference call. My name is Crystal and I will be the operator for today. (Operator Instructions)

I would now like to turn the call over to your host for today, Mr. Stephen Dahle, Manager, Fixed Income Investor Relations. Please proceed, sir.

Thank you, Crystal, 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 Neil Schloss, Ford Vice President and Treasurer; Stuart Rowley, Ford Vice President and Controller; Michael Seneski, Ford Credit Chief Financial Officer. We also have some other members of management who are joining us for the call today including Marion Harris, Assistant Treasurer; Brian Schaaf, Assistant Treasurer; and Paul Andonian, Director of Global Accounting.

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. The final data will be included in our Form 10-Q.

Additionally, the final 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 appendices 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 Ford Credit CFO, Michael Seneski. Michael?

Thanks, Steve. Consistent with prior quarters, today we're going to cover Ford Credit's profit and credit loss performance, our funding and liquidity highlights, Automotive cash debt and liquidity, and we'll wrap things up with a summary of the quarter.

Let's turn to Ford Credit's operating highlights on slide 1.

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

We had another strong quarter, with pretax profit of $506 million and net income of $340 million.

During the quarter, we launched a peer-to-peer car sharing pilot to test Ford Credit customer interest in renting their vehicles to others, as we look to meet future financing and mobility needs.

Managed receivables are showing continued growth consistent with our expectations.

Second-quarter loss-to-receivables ratio of 17 basis points remains at the low end of our historical performance.

At June 30 the allowance for credit losses was $380 million or 32 basis points of managed receivables.

Managed leverage was 8.7 to 1 at the end of the quarter, unchanged from year-end. And at the end of the second quarter, our equity was $11.7 billion.

Turning to slide 2 you can see that Ford Credit continued to demonstrate solid growth supporting Ford. Our origination practices continue to be consistent, and costs remain well controlled and in line with our expectations.

Our pretax profit improved compared with a year ago as a result of favorable volume and mix, reflecting higher consumer finance receivables in all geographic segments and an increase in leasing in North America.

We also benefited from the non-recurrence of unusually high storm losses last year, which is included in the Other line.

Higher credit losses were a partial offset, reflecting an increase in the reserve and higher charge-offs in North America.

And as shown below the chart, pretax profit was largely unchanged compared with the first quarter.

For the full year, we continue to expect our pretax profit to be equal to or higher than last year; year-end managed receivables between $123 billion and $128 billion; distributions to our parent of about $250 million; and year-end managed leverage at the upper end of our 8 to 9 to 1 range.

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

As I said earlier, we continue to experience historically low levels of credit losses. The second-quarter LTR of 17 basis points is well below our 10-year average of 46 basis points.

Year-over-year charge-offs were up $17 million and LTR was up 5 basis points, reflecting primarily higher defaults and higher severity in North America.

The quarter-over-quarter declines were consistent with normal seasonality.

The reserve as a percent of managed receivables was about equal to last year and was up $25 million on an absolute basis from the first quarter. And as you know, the credit loss reserve is based on historical loss performance, portfolio quality, and of course receivable levels.

Slide 4 shows the primary credit loss drivers in our US Ford and Lincoln retail financing and lease portfolio, which comprised about 73% of our worldwide consumer portfolio at the end of the second quarter.

Over 60-day delinquencies remain consistently low at 10 basis points, down a couple basis points from a year ago and down 3 from the first quarter of 2015.

Repossessions continue at historically low levels. They were 6,000 units or 89 basis points, down significantly both year-over-year and quarter-over-quarter. This represents our lowest repo rate on record.

Severity of $8,600 in the second quarter was $1,300 higher than the same period a year ago; $900 of this increase reflects higher amounts financed, higher balances at repossession with our growing number of new contracts, and longer-term mix. The remainder reflects the change we referred to in the first quarter and you can see noted on the slide. The quarter-over-quarter severity increased by about $300.

The second quarter illustrates that we continue to experience historically low levels in many of our credit loss drivers, and our overall performance is in line with our expectations.

Slide 5 shows the quarterly trend of the lease residual performance for our US Ford and Lincoln brands. Year-over-year, leasing growth across the industry continued and is on pace for one of the highest years ever. While Ford Credit's share went up as well, it remains well below the industry average and within the parameters of our One Ford Lease strategy that we've talked about with you guys a number of times before.

In the second quarter, our lease return volume was lower and the return rate was down 5 percentage points compared with the same period a year ago, reflecting fewer 24-month versus 36-month lease placements in 2013 versus 2012.

Our auction values improved both year-over-year and quarter over quarter, and we think that's consistent with the industry.

Our worldwide net investment in operating leases was $23.4 billion, up $1.9 billion from year-end 2014.

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

Thanks, Mike, and good morning, everyone. Turning to slide 6, we are on track to achieve our 2015 funding plan. Year-to-date we have issued about $17 billion.

In the second quarter we completed about $7 billion of funding in the public term markets, consisting of about $3 billion of unsecured debt in the US, Canada, and Europe and about $4 billion of public asset-backed debt in the US and Europe.

On April 30, Ford extended and increased its revolving credit facility to $13.4 billion, of which $3 billion was allocated to Ford Credit to support growth and liquidity plans. This allocation included a $1 billion Chinese RMB sub-facility, which was the largest and first-ever five-year offshore revolving credit facility.

FCE also extended and increased its revolving credit facility by 10% to GBP830 million.

We ended the quarter with strong net liquidity of about $27 billion.

Our funding strategy remains focused on diversification, and we plan to continue accessing a variety of markets, channels, and investors. We continue targeting a single-A investment-grade profile.

Slide 7 shows our projected 2015 global public funding plan for Ford Credit, excluding our short-term funding programs.

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

The forecasted ranges are consistent with our prior guidance.

Slide 8 shows the trends in funding of our managed receivables. At the end of the second quarter, managed receivables were $118 billion, and we ended the quarter with $10 billion in cash. Securitized funding was 40% of managed receivables.

Our projection for year-end managed receivables and securitized funding as a percent of manage receivables remain unchanged from prior quarters.

Turning to slide 9, we highlight Ford Credit's 2015 liquidity. Our liquidity remained strong at $26.6 billion, a decrease of $1.3 billion from the first quarter.

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

As of June 30 our liquidity sources including cash totaled $46.8 billion, down $1.7 billion from the first quarter.

As mentioned previously, our allocation from the Ford's revolving credit facility was increased by $1 billion, reflecting the Chinese RMB sub-facility.

Not included in liquidity sources noted on the slide, FCE Bank has retail receivables pre-positioned with the Bank of England which could, if necessary, support access to their discount window.

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

Slide 10 shows Ford's Automotive debt at $13.7 billion at the end of the quarter, $300 million higher than the first quarter, more than explained by local funding in Brazil.

Ford ended the quarter with net cash of $7 billion and Automotive liquidity of $31.7 billion.

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

Ford delivered an outstanding second quarter -- in fact, its best Automotive quarterly profit since 2000 -- and it remains on track to deliver a breakthrough year.

Ford's pretax profits of $2.9 billion included the best quarter ever in North America and the second-quarter record in Asia Pacific.

At quarter end, Automotive gross cash was $20.7 billion and liquidity was $31.7 billion.

Ford also reconfirmed Company guidance for full-year 2015.

Ford Credit had another strong quarter, with receivables up $5 billion from year-end 2014.

As a result of our consistent purchasing policy and world-class servicing, our 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 an integral part to Ford's business. It supports sales and dealers, builds customer satisfaction and loyalty, and delivers consistent profits from its strong business. We're excited about our car-sharing pilots and our participation in Ford's Smart Mobility initiatives.

And now I'll turn it over to Steve to start the Q&A session.

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

(Operator Instructions) Doug Karson, Bank of America.

Great. Thanks a lot, guys. Good quarter.

All the major stats at Ford Credit seem to be in line or better than I had or you're shooting for, your numbers better than last year, which would bring you I think closer to $2 billion. Just for an update, as far as dividends to the parent company, you'd mentioned that earlier on the call. What are you guys set at right now for that?

It's about $250 million, Doug.

$250 million? Okay. Okay, perfect.

Then from the call this morning, there was some very good color given on this topic, but I get a lot of questions from investors on China. I know it's about 4.7% of your share.

If you could just give us a little parameters there, I know that segment presented $192 million in pretax profit. China was kind of weak. If you could just help me understand what to think about regarding what type of risk China could present.

Doug, it's Stuart here. You are correct; we made $192 million in the region. We made $411 million in our two unconsolidated joint ventures; and that was up compared to the $306 million in the same quarter last year.

So the joint ventures, CAF and JMC, they performed very well. They are benefiting from the products that they launched at the end of last year, principally the new Escort. And Bob highlighted in his comments the products that are still to come in the second half of the year. We launch the three-row Edge in Changan Ford in the second quarter, and we have still to come the Taurus, which is another dedicated product for China, as well as the Everest. And they are all -- the Everest is an SUV that will be built in JMC.

So they're all higher-end products, and they support our guidance for the region, which is to be improved in 2015 versus last year. So we're actually expecting a stronger second half than we've had in the first half. So it's very good performance.

Now behind that, clearly there is softening in the China industry, so we've taken our industry guidance down. It's 23 million to 24 million units now; and last year it was about 24 million units too, so we're effectively guiding to equal or slightly lower.

Obviously that's a change in China from the recent years where we've seen strong growth. But in that environment, our team is on top of that. As we saw the industry soften we've adjusted production quickly. Our stocks are in good shape, so that we are well positioned to reap the benefits of the new products we're going to launch during the year.

But it's clearly a little softer than it has been, but we still expect to see good sales growth and good profitability from the region in total and also in China.

22 million, you give an outlook of 23 million to 24 million units. So I guess we think about it, we're flat to maybe just a little bit down relative to what we saw in 2014.

That's correct, yes. On an industry level.

Industry level? Okay. That's it for me. Thanks for helping me with that and good quarter.

Brian Jacoby, Goldman Sachs.

Hey, guys. Thanks for taking my questions. I'll echo what Doug said: great quarter. Just a couple more questions on the guidance.

I guess back to Asia Pacific, so you did say the second half will be better than the first half. Is that right?

Yes.

On an absolute basis, not just margin. You're saying like overall absolute higher earnings in the back half?

Yes.

Okay, and part of that's a function of, too, you're saying your launching product that's -- a pretty rich mix is what you guys are saying is driving that. So even though pricing for the industry is down you guys are seeing richer mix and your pricing is going to hold up better. Is that a fair way to put it?

Well, I don't think we're making an observation about our pricing relative to the industry. I think we've spoken many times that we've experienced over the years negative pricing in the China industry, and we don't expect anything any different this year.

But what we are doing is introducing product into new segments for Ford and products specifically tailored for the China market. The Escort that we had last year, the now three-row Edge, which was previously an import from North America, is now being produced locally, and that third row is specifically engineered for the China market.

And then the Taurus is a new segment that we're entering in the D/E sedan segment as well as our Lincoln products. So we're adding MKX and we're adding Navigator.

So we're broadening our product range and a lot of that -- and also the Everest, I'm sorry, which is an SUV. They're all new products and they are competing at the richer end of the market, and they come with relatively better margins.

So we're not saying we'll buck the overall trend on pricing, but we're going to have a much stronger product offer in there in the second half. And we're very confident about that offering.

Okay. You did say on the previous call and you may have alluded to earlier, but -- so the volume numbers you're talking for the industry includes, I guess, both passenger and -- what? Light commercial vehicles? Or is it light and medium commercial vehicles you're including in there?

Passenger and commercial. I would have to get back to you, Brian, with a -- I'm not as familiar with the breakdown, the same light and heavy breakdown. But it's total industry.

And in the first half, and I think Mark mentioned this, it was in the commercial segment that we saw the weakness, which is often the case. Those customers sometimes react more quickly to the change. You've the infrastructure, and you've small businesses. So commercial was down and passenger car was about flat.

Okay. Yes, that was the color I was looking for. Okay.

Then moving, switching gears, just North America. Again this is another region where you guys had a great quarter. F-150, everything doing well. And you did say second half would be better here too, right? I just want to make sure we're thinking about the second half right on that as well.

Yes, that's right. In the first quarter, we were really in launch mode in Kansas City. In the second quarter, we did move up to full production.

And of course in the second half, we have full production in both of the plants. Of course comparing to last year in the second half we had our Dearborn truck plant was in changeover.

So yes, so that's correct. We're expecting a better second half and a very good second half in North America.

Right, okay. It just seems -- I guess to conclude on this, on the profit side -- and then I have one other question, but I think this was mentioned on the earnings call, but it almost looks like -- question is why you aren't raising guidance.

Because you have a few regions here that sounds like you are going to be at 10% margin in North America for the full year; and overall just Ford Motor Credit is doing better. So it just feels like things have to get really bad in South America -- or it just seems like you're going to be your $9.5 billion high end for pretax profit.

So just a question is why -- what's holding you back from raising guidance?

Well, we did moderate our guidance somewhat. We said in North America that we had the opportunity to be at the high end of the range of the 8.5% to 9.5% operating margin, based on the really strong performance we're seeing across the products, but particularly on F-150.

The other thing Bob mentioned on the call was that in Europe typically the second half is -- our guidance is unchanged for Europe; we expect to do better than last year. But the second half in Europe is typically lower than the first half, and we would expect the same thing in 2015. That's really driven by the seasonality of the industry and particularly the shutdowns in the third quarter.

So, we've confirmed our guidance, $8.5 to $9.5 billion. Obviously, we continue to work to improve and do better. But we think that's -- it's going to be a very strong year and obviously that's a big improvement from 2014.

Yes, okay. Then final follow-up here is just a housekeeping question. Total revolver is around $13.4 billion, and then FMCC has access to $3 billion. I think you guys said on the earnings slide deck that I guess total liquidity available through revolvers is a net amount of close to around $11 billion.

What's the delta? Is it letters of credit? I'm just curious, what's the delta?

Yes, this is Neil. Some of our affiliates have committed credit lines directly for them, which is incremental to the corporate facility.

Okay. All right. That's it for me. Like I say, great quarter. Thanks.

Brian Johnson, Barclays.

Yes, good morning. Thanks for taking the call. Just on US residuals and the severities, how much of the increase in auction values and where we are in severities reflect truck versus car mix? Because the auction data for mid and small sedans has been trending soft for quite a while. So just wondered how that factors into your whole residual and repo performance numbers.

All right; it's Mike. Normally, you'd see a pretty close relationship; and most quarters you see auction values move and you can tie it right to severities.

This time we're not seeing that as much. As I said on auction values for lease, and you've read this through Manheim as well, used car prices are moving in a pretty narrow range. And we do agree with that, and you can see that on slide 5.

Our performance is pretty consistent with the industry. We're within 1 standard deviation. So overall, auction price is pretty stable to slightly up.

If you look at our severity there's a couple of things going on, and it's not necessarily car versus truck. We are seeing higher amount financed; some of that can be mix related.

But we're also seeing longer-term mix, right? We know the industry is going to more 72-month, and so those are going to have higher severity.

That doesn't mean it's bad. In fact, we know how to price for that, and our profitability and our performance reflects that. So, yes, it will translate to higher severity, but as long as we price for it appropriately, that's okay.

Then the other thing that we're seeing as we grow, the average age of the portfolio gets a little younger. As it gets a little younger, you have a few contracts that default a little earlier in their life, and they have higher severity.

So those three factors are leading to what we're seeing as the increase. Auction value is pretty muted to slightly positive in the quarter-over-quarter and year-over-year comparisons for repo data.

A second question on the lease is your low repo rate, is that random or is it a reflection of maybe a better cure rate on the delinquencies than in the past and maybe some new analytics that you're trying out?

I really do think that it's something that we're seeing across the industry. I mean you guys read the clip sheets as much as I do, and I think you can see our over 60-day delinquency is at 10 basis points.

Companies like Experian, Trans Union, Equifax, the New York Fed, they've all written articles that see auto delinquencies at or near all-time lows. So when your delinquencies are low, obviously that's going to flow on to the net repo rate. So I think it's a combination of a number of things. I think you've seen a sea change in customer behavior, and I also think our tools across the industry are a heck of a lot better than they probably used to be 10 years ago.

Final question. Mark mentioned a lot on the main call about new mobility models, disruptive mobility. Just want to know what you're doing at Ford Credit vis-a-vis that. In particular I noticed that Uber has a lease relationship with Banco Santander to support its drivers. Are you doing anything like that? Is that a market you're studying? Are there other models that you're looking at to take advantage of those trends?

Well, one of the things that we mentioned on the first page of the deck is we've actually launched a peer-to-peer car-sharing pilot in six US cities and London. In the US it's with Getaround, and in London it's with easyCar Club. It targets about 26,000 Ford Credit customers and it gives us a chance over the next six months or so to see how many of our customers are interested in that, how often they use it, and what the behavior patterns are.

We'll figure out where we go from there after that. But we're pretty excited about our involvement in Smart Mobility.

Obviously, we have a huge relationship with the customer. We know it leads to increased loyalty. And if we can utilize that to better meet customers' needs and be part of some of the mobility solutions, we're going to.

Yes, I understand plays like RelayRide and Getaround. But what's the specific Credit versus contribution to that?

Well, at this stage it's a pilot; it's 26,000 customers. And as we get some results of the pilot, we'll let you know where it came out and where we're going to go.

Okay. But it involves special financing projects, products (multiple speakers)?

No, right now it's just access for our targeted retail customers to actually sign up with Getaround or easyCar Club. But there's no financing or anything like that.

Yes. Okay. You're not saying if you could make $200 a month sharing your car we'll take a look at your, say, income to monthly payment ratio?

No.

Okay. Thanks.

You know, I can't wait till we get some of the learnings and see what it is going to tell us about we should be doing. And we're excited about the fact that we are experimenting around the world, and this isn't going to be the last of the pilots that we run.

So next time I fly to Detroit instead of taking Metro Car, can I borrow one of your cars?

There you go. We'll have Steve pick you up. How's that?

We'll check your credit.

Okay, thanks.

Eric Selle, SunTrust.

Hey, solid work. I know these results were not generated in one quarter; a lot of years of hard work. So just definitely wanted to complement your team on that.

But, Mike, a couple questions. One on the revolver. I believe you were saying the growth of $1 billion would be used in China.

I was wondering, what is the split of that? Is that mainly for inventory, or consumer financing, or both? How are you guys expecting to attack that market?

It's really backstop liquidity like we would use the corporate revolver for, but specific for use by Ford Credit in China.

Okay.

So it's really for future liquidity needs, Eric. We haven't identified where we would utilize it. Hopefully at some point it will be used maybe similar to the FCB syndicated facility, but we'll see going forward.

Okay. Then secondly, we've seen some volatility in rates recently. How do you guys look at some of the scenarios -- higher rates, steeper curve that we've been seeing lately -- on your short-term and long-term profits? I know you guys have floating floorplan assets and your other assets reprice very rapidly.

But what interest rate environment concerns you? And what triggers do you guys have to offset that sensitivity?

Well, Eric, as you know, asset liability management is a key part of our enterprise risk management. And we work diligently to ensure that the risk profile of our assets and our liability is as matched as possibly can be.

If you look I think in the Q or the K, it's roughly a no change for a 100 basis point instantaneous increase in rates. I think the thing that is concerning to us is whenever anything unexpected happens, right? If it's already priced into the forwards, if it's consistent with market expectations, then we're pricing the business the right way and it's performing the right way.

It's when unique shocks happen; and we're not expecting that. But even if that were to happen, at most we're going to be a quarter out before we adjust the pricing of our assets and be back on path.

Okay. That's great. Then back over towards the manufacturing side, I saw that the materials were up by $1 billion and that carried through both the overall Automotive and North America.

I know a ton of that is mix and content on the truck production, but can you split out temporary that will fade as we go throughout the year?

I know there's a lot of upfront tooling and marketing launch costs. How much of that will fade?

Are you referring to slide 7 material and commodities.

Yes, so material excluding commodities, about $990 million I believe it was; it's right under $1 billion on the manufacturing side.

Yes, $996 million. Just to clarify, that does not include mix. The mix effect we include in the volume and mix category that's the first bar there. So the number stated there is at constant mix.

Obviously a good chunk of that, as you observed, is in North America. And that's driven by the new products that we've launched and the content on those products, as well as the product improvements.

And as we discussed earlier, it's then associated with a stronger revenue on a per-unit basis. But it's also driving the better product acceptance that we get, then a richer mix and better volume. So we'd expect that to continue through the quarters, as the comparison from last year is largely there through the year, and then thereafter it will ease off.

Of course the other thing we do is we have a very strong cost-reduction program. So typically we launch the product and then we drive our cost-reduction efforts; and then over time that mitigate some of the cost-outs that are in.

But as we've said, a lot of this is in North America and you have to look down at the whole equation. You had focused on the bottom-line profit and margin; and this quarter even without your full run at F-150, we generated an 11% operating margin in North America, which is pretty much best in class.

Yes; that's very heady. And my final question, I'm kind of surprised -- and I guess I don't know why I am surprised. But here we are, almost August and no one's asked a UAW talk question. Maybe this is something that you may not be able to touch.

But it's expected to be a pretty benign year. But there is a differential between Ford and their two in-town competitors on the Tier 2 percentage.

I guess my question is: is there any way for Ford to avoid higher labor cost via buyout or a transfer of some active healthcare over to a trust? Is there a way that you guys can avoid higher labor costs and help narrow that differential?

Well, we have nothing to add, as you probably expect, at this point in time. We had an opening ceremony with the UAW last week. We do acknowledge the data that you referred to.

Third parties have published the data that shows our position relative to our both domestic competition and to the transplants. And of course that's front of mind as we have our discussions with the UAW on the need to be competitive. So our team is very focused on that.

Thanks a lot; and thanks, once again. Solid quarter.

Thank you.

With no further questions I would like to turn the call back over to Stephen for closing remarks.

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

Ladies and gentlemen, you may now disconnect. Have a great day.